Le 02 natural gas exploration and production

Natural Gas Exploration and
Production
Utilization of Natural GasUtilization of Natural Gas
Resources TrainingResources Training
MoEMoE
Morogoro-TanzaniaMorogoro-Tanzania
By: Nsulangi, P.T
Contacts: +255 686 195 449
nsulangi@gmail.com
Masanja,A.M
Contacts: +255 745 086 978
abel.masanja@yahoo.com2020thth
-21-21stst
, December 2018, December 2018

Lecture Contents
 Introduction to Natural Gas Exploration and
Production;
 Tender and Concession;
 Exploration surveying;
 Exploration Drilling;
 Appraisal;
 Well Development and production; and
 Decommissioning and rehabilitation.
Natural Gas Training_2_Tanzania2

Chapter Objectives
 To describes the types of Natural Gas agreements
between states or mineral rights owner and
developers.
 To describe stages in life cycle of the Natural Gas
project.

Natural Gas Agreements
 Natural Gas is important finite natural resource
that require strong collaborative efforts between
the rights owners (states) and developers
(national/international oil and gas companies) for;
– Efficient exploration;
– Extraction;
– Production; and
– Processing.

Natural Gas Agreements cont..
 Countries with proven or suspected Natural Gas
reservesreserves, particularly those that not have
exploration/production capabilities, have
developed and implemented legal structure that
defines the roles and responsibilities of the mineral
rights owner and the developer.
This presentation describes the types of Natural
Gas agreements between states or mineral rights
owner and developers, as well as the advantages
and disadvantages of each.

Factors that Affect Incentives for
Natural Gas Agreements
 Influence
 Negotiation Competence
 Brand Value
 Bilateral Intergovernmental Treaties
 Bargaining Power
 National Legal Provision
 Former Relationship Leverage

Major Types Of Oil and Gas
Agreements
1.0 Concession System
– A concession agreement is a type of contract
between a state or mineral rights owner and a
company that provides the right to operate a
business with the jurisdictionjurisdiction of the latter based on
negotiated terms and conditions.
– The landowner grants another entity or company
exclusive rights to explore and own the resources
and reserves.

Concession System
– This company is responsible for providing capital
and capabilities needed to explore, extract or
produce, and process oil or gas deposits.
– Primary benefit to the company comes in the form
of ownership over the oil or gas reserves while
benefit to the landowner comes in the form of taxtax
and royalties derived from productive economic
activities.

Concession System cont.…
 Advantages
– The primary advantage of this type of oil and gas
agreement is that it is straightforward.
– A developer absorbs all financial risks, including the
costs of oil exploration.
• Disadvantages
- Failure to determine the existence of an
economically viable oil or gas reserve, because
financial burden is largely shouldered by the
developer.

Concession System cont.…
– A landowner may have a hard time looking for a
company that is willing to provide exploration,
extraction, and/or processing capabilities due to the
high financial risks.

Production Sharing Agreement
 A production sharing agreement or PSA, which is
also known as a production sharing contract or
PSC.
– Under Production sharing contract production is
divided between Government and the contractor
after allowing, a lower rate of royalty and cost
recovery.
– Ownership of minerals is retained by the
Government.
– Production sharing is carried out by the Government,
usually through its National Oil Company (NOCNOC)

cont..
BecauseBecause
In PSC, developer allocates part of the oil or gas
income to the cost of exploration, extraction, and
production. Once these costs are covered, the
state and the company split the rest of the income
based on agreed percentage division.
QnQn:
Why there is partially ownership of Oil/NaturalWhy there is partially ownership of Oil/Natural
Gas resources and reserves in ProductionGas resources and reserves in Production
Sharing Contact (PSC) agreement?Sharing Contact (PSC) agreement?
However, this ownership is considerably partial.

2000Mbbl2000Mbbl
10%10%30%30%
=200Mbbl=200Mbbl600Mbbl=600Mbbl=
1200Mbbl1200Mbbl85% 15%
1020Mbbl1020Mbbl
180Mbbl9.5%
96.9Mbbl
923.1Mbbl
1523.1Mbbl1523.1Mbbl 476.9Mbbl476.9Mbbl
23.845%23.845%76.155%76.155%

cont..
 Models of Principal for Production Sharing
Agreements;
– There about three models involved in production
sharing agreements.
Government-International Oil/Gas Company (IOC)
Government-National Oil Company-International
Oil Company
Government-National Oil Company-Regulatory
Department-International Oil Company

Models for Production Sharing
Agreements
GovernmentGovernment
International Oil
Company (IOC)
International Oil
Company (IOC)
National Oil Company
International Oil
Company (IOC)
NOC
Regulatory
SimpleSimple ComplexComplex
Very ComplexVery Complex

cont..
 Advantages of PSC
– The landowner does not need to make a significant
amount of investment.
– A developer absorbs all financial risks, including the
costs of oil exploration.
– Resource nationalism
• Disadvantages of PSC
-This type of oil and gas agreement is very complexcomplex
in structure and
- It requires high level of negotiationnegotiation.

Service contracts/Agreements
 A service Contacts/Agreements
– A service contract tasks involved or contracted
company to develop a particular land area for
productive economic activity.
– This company provides capabilities for explorationexploration,
extractionextraction, and processingprocessing of Natural Gas, thus
receiving payment from the state for providing such
services.
– The landowner must have technological know-how
and do-how as well as financial capacity.

cont..
 Types of Service Contacts/Agreement
– There are three types of service contacts
/agreements in Oil/Natural Gas exploitation;
(i) Technical Assistance Contract (TSCTSC)
(ii) Pure Services Contract (PSCPSC)
(iii) Risks Service Contract (RSCRSC)
(i) Technical Service Contract
• Provision of Technical Service without bearing any risk
• Provide technology to the resources owners
• Contracting firm cannot have interest in the resources

cont..
(ii) Pure Service Contract (PSC)
– Provision of Service without bearing risk
– Can have broad scope
– Compensation to Contractor can be Cash or Oil
(iii) Risk Service Contract (RSC)
• Provision of Service with Great Risk
• Can have broad scope
• Provision of great Flexibility to Host
Government

Service Contracts/Agreements
cont..
 Advantages of Service Contacts/Agreements
– The landowner does owns Natural Gas resources
and reserves
– This type of fiscal regime favors resource
nationalism.
• Disadvantages of Service Contacts/Agreements
- It places substantial operational and financial risks
on the state or Natural Gas rights owner.
- For a risk service contract is that the involved
Natural Gas Company shoulders all exploration
expenses.

Service Contracts/Agreements
cont..
QnQn:
For a risk service contract, what does it mean aFor a risk service contract, what does it mean a
Natural Gas Company uncured all explorationNatural Gas Company uncured all exploration
expenses?expenses?
Answer:Answer:
• This means that if no Natural Gas found, the
contractor/Natural Gas Company bears the
cost.

Joint Venture in Natural Gas
1.0 Primary Form of Joint Venture:
– This involves venturing parties (Government and
International Oil Company-IOC) working together by
means of Joint Operating Agreement wherein each
shall be entitled to production share.
2.0 Secondary Form of Joint Venture:
– Herein, the Government and IOC shall be held
together in that venture by equity.
Today’s global practices show Governments preferToday’s global practices show Governments prefer
to hold majority instead of equal share.to hold majority instead of equal share.

Joint Venture in Natural Gas cont..
2000Mbbl2000Mbbl
30% 10%
200Mbbl200Mbbl600Mbbl600Mbbl
1200Mbbl1200Mbbl85% 15%
90% 10%
9.5%
87.21Mbbl87.21Mbbl830.79Mbbl830.79Mbbl
1430.79Mbbl1430.79Mbbl 569.21Mbbl569.21Mbbl
71.54%71.54% 28.46%28.46%

 Advantaged of joint venture in Natural Gas
– Access to new markets and distribution networks
– Increased capacity
– Sharing of risks and costs (ie liability) with a partner
– Access to greater resources, including specialised
staff, technology and finance

 Disadvantages of joint venture in Natural
Gas
– The partners have different objectives for the joint
venture.
– The partners bring in different levels of expertise,
investment or assets into the venture.
– Different cultures and management styles result in
poor integration and co-operation.
– The partners don't provide sufficient leadership and
support in the early stages

Natural Gas Exploration and
Production
 Natural Gas Exploration
– Natural Gas exploration is the search by petroleumpetroleum
geologistsgeologists and geophysicistsgeophysicists for Natural GasNatural Gas
deposits beneath the Earth's surface.
 The goal of Natural Gas exploration is:
– To identify and locate a prospect,
– To quantify the volume of Natural Gas which might
be contained in the potential reservoirs; and
– To evaluate the risk inherent the project itself.

Types of Natural Gas Exploration
 Three main types of oil and gas exploration
methods:
– Surface methods;
– Gravity and magnetic surveys; and
– Seismographic methods.
 Results from using either one or more of these
methods merely indicate the presence or absence
of favorable underground formations or geographic
features and characteristics that are conducive for
the accumulation of hydrocarbons.

cont..
 Surface methods
– Natural Gas exploration using surface methods are
based on either one of the two principles.
1st
to survey the geological feature of the surface
to determine sedimentary rock formations and
repeated folds and faults or salt domes in
subsurface rock formation.
2nd
to determine hydrocarbon seepage on the
surface of the earth.

Surface Methods
Offshore SeismicOffshore Seismic
SurveySurvey
Onshore SeismicOnshore Seismic
SurveySurvey

cont..
 Gravity and Magnetic Surveys
– The gravity method involves measuring the earth’s
gravitational field at specific locations on the earth’s
subsurface to determine the location of subsurface
density variations.
– The gravity method involves measuring the
gravitational attraction exerted by the earth at a
measurement station on the surface.
– The gravity field at the surface of the Earth is
influenced by density variations in the underlying
rocks.

Gravity and Magnetic Surveys

Seismographic Methods
 Seismographic methods
– Seismographic methods use sound waves to
produce detailed images of underground rock
formations.
 Seismic exploration is the search for commercially
economic subsurface deposits of crude oil, natural
gas by the recording, processing, and
interpretation of artificially induced shock waves in
the earth.

Seismographic Methods cont…
 Seismic exploration includes the following
processes and activities:
– Review existing seismic and available data.
– Acquire, process and interpret new 2D2D seismic
across concessions.
– Drill well to evaluate reservoir characteristics by
acquiring data in drilling phase, open hole logging,
core analysis and production tests.

Seismographic Methods cont…
 Exploration Drilling
– Once a promising geological structure has been
identified, the only way to confirm the presence of
hydrocarbons and the thickness and internal
pressure of a reservoir is to drill exploratory
boreholes.
• All wells that are drilled to discover
hydrocarbons are called ‘explorationexploration’ wells.
• The location of a drill site depends on the
characteristics of the underlying geological
formations identified from seismic exploration.

Exploration Drilling

Appraisal Drilling
 Appraisal
– When exploratory drilling is successful, more wells
are drilled to determine the size and the extent of
the field. Wells drilled to quantify the hydrocarbon
reserves found are called ‘outstep’ or ‘appraisal’
wells.
The appraisal stage aims to evaluate the size andsize and
nature of the reservoirnature of the reservoir, to determine the number ofdetermine the number of
confirmingconfirming or appraisal wells requiredappraisal wells required, and
whether any further seismic work is necessary.whether any further seismic work is necessary.

Well logging

Development and Production
 Development and Production
– Having established the size of the oil field, the
subsequent wells drilled are called ‘development’ or
‘production’ wells.
– A small reservoir may be developed using one or
more of the appraisal wells.
– A larger reservoir will require the drilling of
additional production wells. Multiple production wells
are often drilled from one pad to reduce land
requirements and the overall infrastructure cost.

Development and Production

Development and Production cont..
Source: Nsulangi, P.T,2017Nsulangi, P.T,2017( https://www.youtube.com/watch?v=xgykgVDvUZ8)

Decommissioning and
Rehabilitation
 The decommissioning of off/onshore production
installations at the end of their commercial life,
typically 20–40 years, may involves:
– Removal of buildings and equipment;
– Restoration of the site to environmentally-sound
conditions;
– Implementation of measures to encourage site re-
vegetation; and
– Continued monitoring of the site after closure.

Decommissioning and
Rehabilitation cont..

Chapter Summary
 Natural Gas is important finite natural resource
that require strong collaborative efforts between
the rights owners (states) and developers
(national/international oil and gas companies) for
efficient exploration and utilization of natural
resources.
 It need influence, negotiation competence as well
as bilateral intergovernmental treaties in order for
the states or mineral rights owner and developers
to benefit from natural resources exploitation.

References
 Munton, A. J. (2006). A study of the offshore petroleum negotiations
between Australia, the UN and East Timor.
 Tellness, J. (2005, January). Dealing with petroleum issues in civil war
negotiations: The case of Sudan. In 13th Annual National Political
Science Conference (pp. 5-7).
 Daniel Johnston. (1994). International petroleum fiscal systems and
production sharing contracts. PennWell Books.
 Hunt, J. M. (1996). Petroleum geochemistry and geology (Vol. 2, pp. 1-
743). New York: WH Freeman.
 Chengzao, J., Zheng, M., & Zhang, Y. (2012). Unconventional
hydrocarbon resources in China and the prospect of exploration and
development. Petroleum Exploration and Development, 39(2), 139-146.
 Doré, A. G. (Ed.). (2002). Exhumation of the North Atlantic margin: timing,
mechanisms and implications for petroleum exploration. Geological
Society of London.Natural Gas Training_2_Tanzania46

Any Questions, Suggestions,Any Questions, Suggestions,
Comments, etc.Comments, etc.
THANK YOUTHANK YOU

Le 02 natural gas exploration and production

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