Saturday, April 19, 2008

Making holes in the ground

With the advent of the internet and border-less world, I'm attempting to keep people abreast with the development of the oil industry by creating this blog. There are a lot of interesting issues to talk about as this industry has been strong for the last decade. Let's just start with the basics of oil & gas development, which many seemed to be unaware of.

Everything starts with "Exploration" phase where "Operators" (Companies given rights by the Government to extract the mineral) attempt to find reservoir in the ground, be it oil or gas, and estimate a volume. The means of exploration is using seismic, an acoustic method of determining the content in the ground. This applies whether it is on land, offshore, in the artic or so forth.

Once data is obtained, Operators will drill "Wild Cats" or "Appraisal" wells or "Exploration" Wells to determine the real value of the data. A Drilling Rig will be deployed in this phase. A rig can be of many types, whether a semi-sub, jack-up, drill ship, tender-assisted platform rig (TAPR), platform rig. The well is then drilled and tested to determine the real production value of the reservoir.

Once the true economic value of the reservoir is realized through actual "well testing" (the act of producing an exploration well and estimating the production flow rate by using flow meters), drilling, reservoir and facilities engineers get together to come up with a development plan, normally called a Field Development Plan or FDP. The FDP is then submitted to the regulatory body for approval. The FDP also includes an estimate of the cost involved in developing a field of interest.

When the approval comes in, money pours in. "Platforms" (Stationary structures in the ocean to act as conduit for wells and house production equipment) are built, pipelines are laid. Rigs are then leased from third party contractors and mobilized to platforms. Wells are then drilled and completed.

All of these processes are classified as the "Upstream" business. When crude or gas are transported via pipelines or tankers and refined in plants, it is now considered the "downstream business". Crude is then refined to many grades, from the lightest kerosene, jet fuel to the heaviest tar. Derivatives are also used for the production of plastics, chemicals, polymers.

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