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COLUMNISTS

Sharpe: The Big Gulp theory of reservoir engineering

George Sharpe
Merrion Oil & Gas Investment Manager

“It ain’t rocket surgery.”  At least that is what I tell the 30 some high school seniors who take my Petroleum Engineering Mentorship class every fall.  Yes, the sad reality is, a high school kid can do my job.  Shhhhh… don’t tell my boss.

Merrion’s Engineering Mentorship students meet at 7 a.m. every Wednesday in the fall.

It really is pretty simple.  You see, an oil reservoir is just like a 128 ounce Big Gulp that you buy at the movies.  But before you pay the $17 for your tub of sugary goodness, let’s do some calculations to verify how much you are really getting.

In the fifth grade we learned that Volume = Height * Area.

We can measure those dimensions on our Big Gulp and verify that we have a one gallon container.  But their marketing trickery doesn’t fool us!  We know that doesn’t mean we get a gallon of coke because the ice takes up space, and some of the ice has melted, adding water to the equation.  The space between the ice is called pore space, and the percent of pore space compared to the total is called Porosity.  The percent of that space that is filled up with coke instead of water is the Coke Saturation.  So we multiply these factors into the equation to calculate our true Coke Volume.

Our oil reservoir is quite similar.  The sandstone rock is like crushed ice that has melted slightly and has then been stuck back in the freezer. When you pull it out, it seems like a solid piece of ice, but the crushed ice is just frozen together at the contact points, leaving significant Porosity in between.  Similarly, the salt in the ancient ocean in which the sand was deposited precipitated out over eons of time and cemented the sand together at the contact points, leaving pore space in between, hopefully full of oil.

George Sharpe, Merrion Oil and Gas investment manager

When we first pop the top and stick our straw (our wellbore) into the coke, the carbon dioxide that is dissolved in the coke comes out as a gas and creates pressure that pushes the coke out of the straw. Crude oil has the same “reservoir energy” in the form of dissolved methane and ethane, which when given the chance, convert to the gas phase and push the oil up the wellbore.

However, as that pressure quickly dissipates, coke no longer comes out of the straw and oil no longer comes to the surface.

So we have to add energy to the system. For our coke, that energy is us sucking on the straw. For our oil reservoir, that energy comes from a pumping unit that pulls the fluid to the surface.  Just like coke into our belly, the oil goes into a Separator at the surface that separates the oil, gas, and water, sending the water to disposal and putting the oil and gas to work.

The Big Gulp theory

A gas reservoir, on the other hand (the San Juan Basin is primarily gas), is more like a scuba diving tank (or a bike tire or a basketball).  Before we drill a well (go scuba diving), we really want to make sure there is plenty of air.  So we get out our ruler and determine that our tank is a one-cubic-foot container. That doesn’t seem like enough, eh?  But unlike liquid, gas is a compressible fluid.  The tank gauge which reads full or empty is really reading Pressure; same as your car tire.  The higher the pressure, the more gas molecules you have crammed in there.  So we add a pressure term to our Volumetric Equation to convert the one cubic foot of “Reservoir Volume” into maybe 1,000 cubic feet of “Surface Volume”.  I think 1,000 cubic feet will last me a while, so its time to go swimming.

When you drill a well into a gas reservoir, or open the valve on your scuba tank, or poke a hole in your tire, gas flows out because the reservoir pressure inside is greater than the surface pressure outside.  The rate at which gas flows out of the reservoir is equal to a whole bunch of Crap times that pressure difference between inside and outside.  The greater the pressure difference, the higher the flow rate.

Because it maximizes our return on investment, we LOVE a higher flow rate, so petroleum engineers do everything they can to both maximize the pressure difference and maximize the Crap term.  There are a lot of variables in that Crap term, and all of them make sense (including but not limited to the permeability of the reservoir, viscosity of the fluid, and how effectively the well is connected to the reservoir — how big the hole is).  Many variables are beyond our control, but the latter variable we address by fracture stimulating most wells, creating cracks that reach out into the reservoir and increase the flow rate by more efficiently connecting the wellbore to the reservoir.

At this point, our reservoir starts talking to us, and it behooves us to listen.  If we plot Flow Rate vs Time on one plot and Reservoir Pressure vs Cumulative Production (how much we have taken out) on another plot, both of those will decline as the pressure depletes and the flow rate diminishes.  If you poke a pin in a truck tire and a bike tire both inflated to 100 pounds per square inch, for a minute the flow rate will be identical.  However, the bike tire will deplete much more quickly over time.  So from this data of “past performance,” we begin to learn about the size of the reservoir, which helps us to predict the future production.

Oil and gas reservoir characteristics

At the end of the day, it’s all about the future, because from that we determine the remaining value of the well.

The mentorship students learn to use these simple tools to predict the future production from a well.  They then build a cash flow analysis spreadsheet that turns those predictions into dollars and cents.  Working in teams, their final project is to evaluate a property that is actually for sale, and make a recommendation to Merrion Oil & Gas President T. Greg Merrion as to what to bid.

Merrion tries to buy the property in an online auction, occasionally successfully.

This last year we bid $330,000 on some gas wells in Wyoming, but were bridesmaids again. The team of Ned Merrion and Jared Williams (aptly named Team Frack Stain) were the closest to the actual winning bid, and took home the side bet we made amongst the teams.

Meg Mullins and Melanie Kemp make their case to Merrion Oil & Gas President T. Greg Merrion for a $352,000 bid.

If your son or daughter is going to be a senior next year (or at SJC) and is interested in next fall’s program, have them text me at 505-402-5798 or email me at gsharpe@merrion.bz.  Like I said, it ain’t rocket surgery.  Most things aren’t.