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Updated op ex power-point 22nd march 2011
This document provides an overview and agenda for a three-part learning simulation about the oil and gas industry called OilSim. The simulation uses a team-based challenge where participants take on the role of an exploration team tasked with finding and drilling for new oil reserves. It outlines the objectives to learn about exploration, drilling, partnerships, licensing rounds, and applying business strategies. The agenda includes challenges to find sedimentary basins, identify promising blocks, form partnerships, conduct drilling, and participate in additional licensing rounds. It describes the evaluation of teams based on return on investment and credibility points awarded for correct decisions.
Updated op ex power-point 22nd march 2011
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- 2. Three Part LearningSystem Introduction to the Industry
- 3. Overview ofthe Oil & Gas Industry Value Chain Oilpatch EXClassroome-LearningModulesExploration 101
- 4. Drilling andCompletions 101
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- 6. Team LearningSimulation OilSim2
- 7. Oil and GasIndustry Value Chain
- 8. Your Challenge TodayYouare an exploration team in charge of a new petroleum exploration area. Your task is to find and drill for new reserves and to maximize return on investment (ROI).You will need to work as a company as well as in partnership with others.You will show your new understanding of exploration and be rewarded through Credibility Points.
- 9. FinancesYou will startwith $50 millionYou can apply for more later.Creating ValueProfit is measured by the net value of the oil and gas fields discovered MINUS all costs involved.Winning team has highest ROIROI is calculated as Value created DIVIDED by Funds received.
- 10. Credibility PointsYou getCPs for doing wellduring the simulationCorrect answers and sensibledecisions are awarded with CPsCPs are a measure of ability and credibilityA team’s CPs are considered when bidding for blocks and applying for funds from the HQ
- 11. You will learnWhereand how to find hydrocarbons. Various surveys during exploration.Licensing rounds. Farm-in and Partnerships.Drilling rigs and Sub-contractors.Environmental issues.Economically viable volumes. Reducing uncertainty.Team work and negotiation. Critical decision making, analytical skills. Multi-tasking.
- 12. AMTeam Challenge 1– Finding BasinsTeam Challenge 2 – Finding ProspectsTeam Challenge 3a – PartnershipsPMTeam Challenge 3b – DrillingTeam Challenge 4 – License Round 2Close and Feedback88Today’s Agenda – OilSim
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- 15. MapColumns e.gC1, and C54 Rows e.g. R35 and R163BlockBlocks are divided into smaller cellse g. C57,R73
- 16. First challengeChallenge: Findthree sedimentary basins in the area. Basins are sedimentary rocks in the deep subsurface where oil and gas has been generated.Procedure: Buy and study magnetic and gravimetric surveys; and to submit the coordinates, column and row number for each basin centre.
- 17. Gravimetric surveysGravimetric surveysshow the gravity in the sub-surface. Measured by airborne sensors.Sedimentary rocks have lower densities than the surrounding crystalline rocks. Low gravity means high probability of a basin below.Low gravity are basins. High gravity are crystalline rocks
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- 20. Survey in OilsimGravimetricsurvey:South-east quadrantGravimetric survey:South-east quadrant
- 21. Survey in OilSimAllfour quadrant surveys in map context.
- 22. Magnetic surveysMagnetic surveysshow similar information as gravimetric surveys. The sedimentary rocks in the basins have a lower concentration of magnetic materials than the surrounding crystalline rocks. Sedimentary basins are the areas with the lowest magnetic field.Basins have low magnetic fieldNon-basins have high magnetic fields.
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- 24. Survey in OilSimMagneticsurvey:North-west quadrant
- 25. Survey in OilSimAllfour quadrant surveys in map context.
- 26. Gravimetric survey analysisLocateedges of the continous basin structure (yellow area)Locate the diagonals and thus basin centre
- 27. Magnetic survey analysisLocateedges of the continous basin structure (purple area)Locate the diagonals and thus basin centre
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- 29. Centre may notbe the sameC50Example:Top basin on both maps Calculate the midpoint between the gravimetric and magnetic centres found= C55 and R105R100C60R110
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- 31. Centre Midpoint calculation3centres – one Centre midpoint for each basinExample: C55, R105Solve before deadline. All submissions are evaluated after the deadline (and not before).You may get 0-100 CPs. All three centres must be located to get full Credibility points.
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- 33. Task 1 solvedAllteams have submitted their answers. Basin centres are located.Message in Inbox. All teams have answers and CPs awarded.
- 34. Challenge 2 :license roundSedimentary basins may contain oil and gas.The government has decided to put the blocks around one of the basins on offer.Challenge: Identify the 3 most promising blocks and offer an amount for each of them.
- 35. Challenge 2 :license roundAny restrictions involved? Yes, you need to watch for Endangered Species Rangeland.What are we looking for? Hydrocarbon Prospects. Where do we find prospects? In sedimentary basinsHow do I find them? Interpreting 2D seismic and Common Risk Segment maps.
- 36. ProspectProspect: An areaof interest in the subsurface identified to be likely to contain hydrocarbonsWhat makes a prospect?Source rockMigration path Reservoir rockSeal or cap rockTrap
- 37. TrapsGeological “pockets”, thatmight contain hydrocarbons.Anticline trap(c) OLFStratigraphic trapSalt dome trapFault trap
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- 39. Red areasYou willnot be allowed to bid, drill or operate in any of the red areas. Green areasBlocks in area may be awarded.Sensitive Range-Lands Survey
- 40. Common Risk SegmentsIsthere a sedimentary basin and a migration route into the prospects in the area?
- 41. Is there porousreservoir rock in the area, so that the oil or gas can be stored?
- 42. Is there asealing rock in the area, so that the oil and gas can be trapped?
- 43. If all arepositive, then green
- 44. If some negative,then orange
- 45. If mostly negative,then redCommon Risk SegmentCRS.Common Risk Segment surveys tell you about the probability of a structure in the block/cell containing oil or gasSurfaceLayer 3 Eocene1500m below the surfaceLayer 2 Paleocene2500m below the surfaceLayer 1 Cretaceous3500m below the surface
- 46. 2D Seismic surveysTrapscan be found with seismic surveys2D seismic survey is a cross section of the geological layers along either a column or a row.2D seismic surveys are used for locating prospects.
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- 49. OilSim of 2DSeismicUnprocessedProcessedRedis top of the sealing rockGreenis top of the reservoir rockInterpreted
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- 53. Order Seismic45Buy 2DSeismicfrom the Survey ShopOrder SeismicWhat type of data do you want?Columns or RowsUnprocessed or processed dataInterpreted or not
- 54. Order SeismicIt takestime to process your requestCreated to order
- 55. View the SeismicRedcircles – navigate through the 2D seismic
- 56. Yellowsquare – Row1 from Column 1-56Cross-sectionsColumnRowProspect, ReservoirBasin,Source
- 57. License Round inOilSimMinimum bid is $250KMaximum bid is $7.5MEnter numbers without commas (ex: 250000)You will bid for 3 licenses but each team will only be awarded one licenseHighest bid wins the licenseIf two teams bid the same, the team with the most CP’s gets itRandom license awarded if none of your bids are high enoughSubmit your bid before the deadline!
- 58. Enter bidsThree differentblocksThree bidsExample-Block 1123Bid 250000
- 59. Recap on Challenge2Study Sensitive Rangelands Survey to see which blocks to avoidUse Common Risk Segment surveys to see which blocks to examine closer (look for green)Buy and study many 2D surveys to identify which ones have the most potential traps, as well as the biggest traps.
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- 61. Task 2 solvedMessagesent to all teams with the resultsCredibility points are given for prosperity of the blocks you bid forEvery team has got one exploration license
- 62. Challenge 3 :Exploration DrillingCompany management has reviewed the licence that you were awarded and the potential cost to drill a well.Although the possibility of finding oil is fair, the costs involved are large. They have asked you to spread the risk. Challenge: Farm-out a minimum of 20% on your license and farm-in as much as you can on other good licences.
- 63. PartnershipsSpread the risk:e.g Investing in other blocks divides the risks amongst all partners, much more preferable than keeping 100% of one field and all the risk.Increase probability of profit: investment in only 1 field which could be a dry prospect is possible, whereas the likelihood of investing in 5 fields which are all dry is unlikely.
- 64. Challenge 3.1 PartneringAcquire3D Seismic interpretations for the block you operate, and study the results from the licensing round-can send under “surveys” to possible partnersFarm-out: Get others to invest 20% or more in your licenseFarm-in: Send offers to other teams to buy shares in their viable licences. Submit an offer for each viable licence, with amount offered and share wanted in whole %.
- 65. Real 3D SeismicShowsthe subsurface structure in a cube.
- 66. 3D Seismic inOilSimStructures are prospects, where hydrocarbons may be.Prospects are no guarantee for oil or gas
- 67. 3D Seismic inOilSimLayer 3 EoceneLayer 2 PaleoceneLayer 1 Cretaceous
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- 70. Min bid is$25000 and max is $1250000 per %
- 71. Add a messageto the seller
- 72. Press “Send offer”FinancingWhena team receives a Farm-In offer it appears underFinancing. This is where a team can receive finance or money for a % of their own blocks
- 73. Farm-inlicense OWNER decideswhether to ACCEPT or REJECT the offer Partnerships established every time a license owner accepts an offer.
- 74. InvestingAll your farm-inoffers to other teams are shown under “Investing” on the right-hand side of the homepage . This is where a team offers investments to other teams for a % of their blocks
- 75. PartnershipsPartners pay aproportional share of all future costs incurred by the partnershipPartners receive a proportional share of the net proceedings from any oil or gas found on the license. The operator team makes all decisions regarding acquiring 3D seismic, drilling of wells and testing of wells. Information: partners in a block can access info about drilled wells and discovered oil and gas fields.
- 76. Ready to drillClickon drill
- 77. Choose rigTruck mountedRigsMedium Duty Rigs Heavy Duty RigsChoose RigMax drilling depth is importantRig cost = drilling days * day rate
- 78. RigsFew: limited numberof rigs available.If you get one: start using it within 20 minutes.If you don’t: wait in a queue, if another team is using the rig.Price can change: rig day rates are dynamic.
- 79. Drilling DepthsGround level19daysLayer 3 Eocene35 days1500 m below surface45 daysLayer 2 Paleocene2500 m below surfaceLayer 1 Cretaceous3500 m below surface
- 80. Service providers9 Starquality:Good- costs moreBad: - cheaper, but reliability is low 5 types of providers- Construction and Maintenance , Logistics, Well Services, Camp Services and Analysis
- 81. Penalties & FinesCertainproblems can occur if Service Provider Selection is poor qualityOther penalties can occur if you drill in areas indicated as problematic in the Environmental Impact AssessmentAs in real life, problems can occur randomly and these are also applied with fines levied accordingly.Oil spill control – 5% of overall drilling costs
- 82. Environmental ImpactAssessmentEIA survey: more knowledge about the area.Less probability for drilling problems.Less severe consequences if you run into problems.
- 83. Drill PositionEIA: enviromentalimpact analysis shows where not to drill.Place your mouse where to drill
- 84. Drilling PositionLayer 3EoceneLayer 2 PaleoceneLayer 1 Cretaceous
- 85. Drill PositionToo deepfor the chosen rig.
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- 88. Drilling ResultProven Volume(MBOE) counts
- 89. Test may increaseProven volume
- 90. Remember to tickthe boxes!TestingOnly if you discover a field – find Oil or GasYou decide whether you want more information about that fieldMore information by doing a production test (and other tests)Tests costs. Tests take 10 days per field. Tests have the same day-rate as the drilling if you use the same providers.
- 91. Value and ROIVolume Range, e.g. 1-897
- 92. Proven Reserves e.g.1Value Calculation The total proven oil and gas = 18MBOE Allowing for 25% recovery factor0.8 Production profile factor and 10% discount factor per year
- 93. 84BEHIND THE SCENECALCULATION 18MBOE x 25% recovery factor = 4.5MBOE
- 94. Sales price withoutdiscount factor ->4.5MBOE x $50 = $225,000,000Sales price allowing for production profile -> $225,000,000 x 0.8 (production factor)= $180,000,000 Reduced sales price with 10% discount factor per year = $ 67,397,022
- 95. 85VALUE CALCULATION12% $39.9M($6of $50 = 12% tax)Expected costs ifyou developed thefield (CAPEX) andproducedthe oil (OPEX)If total expenses arehigher than the salesvalue, the licence value is zero
- 96. AppraisalFrom Probable volumeto proven reserves
Editor's Notes
- #3 8:10 Explanation of Oilpatch EXMake a brief and relevant transition from the video.Brief review of the 3 components and how they fit together – highlight flag – you are here (today).Brief check on elearning experience. How was it? What did you learn? What stuck? Any surprises?Reinforce that you will be doing some review from the elearning, but mostly picking up on where it left off...Participant IntroductionsPoint out the diversity of this group – provide some examples of representation based on what you know about them.Quickly go around the room and get people to introduce themselves, who they represent, how they are connected to the industry... Transition to the learning objectives... “We have good representation in the room today and will try to leverage our collective experience to achieve our learning objectives over the next two days.”...
- #4 The long and bumpy road for oil from the underground to your tank, is called the oil and gas industry value chain.The value chain is divided further into these parts:Upstream is about getting the hydrocarbons up from the ground, and comprises of activities related to exploration, field development, construction, production and abandonment. By its nature, the exploration phase is common for both oil and gas, but soon afterwards, the oil and gas value chain will segregate into two parallel value chains.Midstream is about transportation and storage, as well as oil refining and gas processing.Downstream is about distribution and retail sales of gas, fuels and lubricants, plastics and other hydrocarbon derivatives to industrial and consumer markets.OilSim Exploration is all about the exploration part of the oil and gas industry. Exploration is about finding the hydrocarbons and proving that they are in sufficient quantities to start producing. OilSim Field development and Production is about actually taking the oil or gas out of the subsurface.
- #33 This slide illustrates the relationship between the sedimentary basins you identified in the first task and the prospects which you will encounter in the second task.Oil and gas form as the result of a precise sequence of environmental conditions:The presence of organic material – like plants, algae and bacteria Organic remains being trapped and preserved in sediment The material is buried deeply and then slowly "cooked" by increased temperature and pressure. Rocks containing sufficient organic substances to generate oil and gas in this way are known as source rocks. A prospect is a subsurface structure that is likely to contain hydrocarbons, whereThere is a source rock , where the original oil or gas was generated.Porous migration rock allowing the hydrocarbons to move into the prospectA porous reservoir rock in which the oil and gas is held and An impermeable cap rock that traps the oil and gas in place
- #38 Since the CRS show the probabilities of prospects in only one particular horizon or layer, it is necessary to purchase the CRS for all 3 layers so that you can determine which area within the licensing area contains the highest probability of containing oil and gas. So on the CRS maps shown here the area circled in black on the OilSim map and each of the CRS shows that the area in question is within the licensing area and is green on all three CRS layers, indicating high probability of oil and gas on all 3 layers within the same area or blocks. Potentially an area that requires further investigation for individual prospects.
- #40 Seismic surveys are made from sound waves that are sent into the subsurface, reflected, and measured when they get back to the surface.This slide shows an example of a real seismic line. It shows a cross-section of the subsurface with the blue and red lines indicating changes in velocity of the wave and therefore changes in the rock properties, whereas the changes in the time of the reflection echo indicate the structures (because seismic is recorded in time, not in depth)The black, red, and green lines are lines added as interpretation of the data by geophysicists.black lines are so-called faults, which have happened for instance after earth quakes or other dramatic geological events.green lines are where geophysicists think the reservoir rock beginsred lines are where the geophysicists think the sealing rock begins In this particular case there is a prospect indicated under the orange arrow, within the orange triangle.
- #45 Hear the area between the reservoir and the sealant rock has been shaded in to show you whether you still have a seal at the fault or a gap where leakage could occur.
- #46 When you want to buy seismic surveys, click on surveys-tab in the centre of the page. On the right hand side you’ll see the survey shop appear and click “buy”
- #61 As this figure illustrates, you can drill through all three horizons in one well.You can even drill a deviated well, so that the position is not exactly the same in all horizons.The deviation can be one cell per horizon.
- #62 This is the licensing page that displays all of the available licences for teams to farm into, it shows how much the owner of each licence owns, and how much they have farmed out altogether.
- #63 Go to licensing page, click on financing, select the licence block that you wish to farm in on, click ‘farm-in’When reviewing a farm-out offer you can either accept the amount or % the license owner requests, or amend the amounts to your own offer. Add a message to the seller explaining why they should choose your team and press “Send offer” You can also send a 3D Seismic survey to you proposed investors, this is so they can have a look at your prospectsPLEASE NOTE: Students should be encouraged to negotiate around the room before offers can be agreed, rather than just sending out offers via the ‘farm-in’ page’
- #64 Overview: On the main page, you can see all licenses. 1) licenses you operate, 2) licenses you have invested in, and other licenses.Financing – Is where a team is able to accept offers, and therefore receive money or “finance” for a % of their own blocks When a team receives a Farm-In offer it appears under financing on the right hand side of the homepage
- #66 All your farm-in offers to other teams are shown under “Investing” on the right-hand side of the homepage . This is where a team offers investments to other teams for a % of their blocksRemember you must have farmed-out 20% of your own block before you can drill.
- #68 This ‘drill’ button can only be accessible if your team has farmed out at least 20% of their company
- #70 The next task is to choose which rig to use to drill the exploration well.There are three types of rigs: drillships for the deepest waters, semi-submersible rigs for middle waters, and jack-up rigs for shallow waters.The rigs have different costs per day, and the drilling days depend on how deep you drill into the subsurface and which service providers you choose
- #71 In most cases there are fewer rigs than teams, so you need to be fast to get good and cheap rigs for your wells.When you order a rig you need to start using it within 20 minutes.If you do not use it within the 20 minutes, you will pay for 20 days of use.You can release a rig by going back steps and changing your choice.The rig rates are dynamic, so that popular rigs tend to have increasing prices, while less popular rigs become cheaper.
- #72 This figure illustrates the different “depths” we are working with in OilSimThe water depth is the distance from the water line to the seabed.Layer 3 is approximately 1500 meters below the seabed, layer 2 is 1000 meters further down, and layer 1 is 3500 meters below seabed.
- #75 Before you choose where to drill you should buy an Environmental Impact Assessment (EIA) survey to get more knowledge about the area. The benefit of an EIA survey is that you will be prepared for any environmental challenges you might encounter when drilling. With an EIA survey you will have lesser probability for drilling problems, and the extra costs will be less. Also, in the EIA survey you can see which drilling locations you should avoid. Some areas in your block are challenging to drill in. This can be because of marshy areas, ponds, adverse weather conditions on the surface. When you drill in those locations your costs go up 20%. You can see these locations in the EIA survey. You only have to buy one EIA survey for each licence that you operate. You can find the EIA surveys under Surveys.
- #77 As this figure illustrates, you can drill through all three horizons in one well.You can even drill a deviated well, so that the position is not exactly the same in all horizons.The deviation can be 1 cell for each horizon.
- #79 Inputting estimated cost of drilling gives you Credibility points. You need to add all the costs of the rig and the service providers together and multiply this by the number of days you think it will take you to drill. The oil spill control is voluntary but costs 5% of the drilling amount per day but will earn you more Credibility points and cost you less to clear an oil spill if it happens.
- #80 To determine how long it will probably take to complete drilling, check out the “drilling Information” tab. 1 Minute = 1 Day of Reservation Time - example – when you hire a rig, you hire it for 20 days, so when this is translated into virtual time – you get the rig for 20 minutes, giving you 20 minutes to drill, however by the end of the first few drills it should only take roughly 5 minutes max so just make them aware that their rig will be unavailable after 20 minutes.
- #82 When you have discovered a field the first decision you need to make is whether you want more information about that field right away and BEFORE you drill another exploration well.You can get more information by doing a production test, which is a process in which you try to produce oil or gas from the field.In OilSim production tests take 10 days per oil and gas field and you use the same providers as before.
- #84 We have a total proven amount of 18mboe of oil and gas in our 2 prospectsNow at a price of $50 a barrel but taking into account that only 25% of field is likely to be recovered.Behind the scenes a complex calculation taking into account: that the production will not be the same each year of the field’s life – so a production factor of 0.8 is used for this purpose That a discount factor is applied of 10% each year to take into account unforeseen issues that will affect the sales value
- #85 So for those that are interested the behind the scene calculation is18MBOE x 25% recovery factor = 4.5MBOESales price without discount factor ->4.5MBOE x $50 = $225,000,000 Sales price allowing for production profile-> $225,000,000 x 0.8 (production factor)= $180,000,000 Now the system calculates that if there was no discount factor we would make £180,000,000 divided by 25 = 7,200,000 per yearTo this annual amount a discount factor of 10% is applied per year, so in year 1 our sales would be 7.2 million, but in year 2 it would be 6.48 million, etc. And then all these individual sales values per year are added together to give us our total expected sales value of 67,397,022
- #86 Next to calculate the actual licence value, we have to take into account our expenses of developing the fieldHere we apply the production tax of $6 a barrel, which is the equivalent to 12% taxWe also have a drilling and Well CAPEX for setting up that well and the OPEX for the maintenance and operations throughout life of wellBut also we have the facilities CAPEX and OPEX, the overall facility that will manage all the wells, accommodation for personnel, etc to pay for.So when you first start drilling you have a lot of expense and very often end up with a Zero or negative Value of the licence
- #87 When you have drilled the first well, you only have a small sample of the new-found oil or gas field. This is evident by the wide ranges of the area, thickness, quality, and volume variables. These wide ranges tell you that you actually do not know much about the field.After drilling and testing, your next step therefore is to drill another well – and test it. This is called an appraisal well.Normally it takes at least three or four wells into a field before the license block becomes economically viable.Sometimes it takes much more, and therefore you should not give up if the first wells into a field do not give any license value.However, you should give up if the upper boundaries of the field become so low that there is no chance that it becomes economically viable. This is often the case in deep-water blocks, where the CAPEX are very high.
- #89 So looking at another example of a different block. Here we can see 4 prospects that have had many appraisal wells drilled. Now the proven volumes are nearly the same as the possible volumes on 3 of the prospects.
- #90 So for the 4 prospects we have a Sales value of $1.473 billion , achieved through much higher proven reserves. We can deduct the expenses and have a positive value of our licence
- #95 8:20: Learning Objectives Explain the objectives for the overall program.Reinforce that today’s session reinforces the elearning and creates an opportunity for good discussion about the industry.Also mention that today’s session will prepare them for participation in Oilsim tomorrow.Remind people that the topic is broad, deep and complex. It is not possible to address any of the elements in detail, but you will be in a better position to…Description of ObjectivesDescribe how the industry impacts and is affected by global, regional, and local dynamicsArticulate the industry value chain and its various people, process, and technological componentsPractice skills and new knowledge by interpreting exploration data to create drillable prospectsAppreciate the complexity and critical integration of the upstream, midstream, and downstream sectorsTransition to high level agenda
- #96 Summary Ask “Are you breathless yet?” While we can’t possibly cover everything in detail we can use the value chain as a roadmap to dissecting and understanding each of the industry sector and the component parts. Let’s begin at the beginning…with the upstream sector and Exploration.
- #97 8:30 Lenses – Context for the DayRefer to today’s paper and find an example to illustrate that rarely a day goes by without some mention and/or controversy about the O&G industry.Today we will investigate the industry through many lenses. Refer to slide.Each viewpoint can be very different on many issues. To create your own informed viewpoint, you need to have some basic knowledge of the industry and how it works, how it creates value, and the impacts (both good and bad) that it has on society. That’s one of the goals of this course – for you to be able to increase your own knowledge and confidence level in learning more about issues such that you can have a great conversation with your boss, your colleague, or a friend at the cocktail party.Engage the group by asking, What are the different lenses through which the O&G industry is viewed? What is the diverse group of stakeholders? What are their respective points of view? What are the “rub points”? What are the conflicting points of view? To be informed and able to get more information because you know where to look is a very powerful tool as an employee, a partner, a citizen and a consumer. Transition to ground rules…I look forward to having a great discussion with all you today from as many angles as possible.