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Measures for early development of oil and gas discoveries.

During the last decade, positive exploration policies adopted by the government resulted in extensive exploration and numerous discoveries. However, only forty per cent of these discoveries have been developed so far. The paper discusses main factors causing these delays, such as infrastructure bottleneck, customer availability, pricing financing and multiple window operation. The paper also discusses some remedial actions and introduces an emerging concept on an integrated turnkey approach that could substantially reduce the lead time from discovery to production.

Exploration and development efforts during recent years have resulted in a major increase, in indigenous energy supplies; natural gas production has increased to 1,500 million cubic feet per day and oil production has gone upto 60,000 barrels per day. However, the current level of indigenous energy supply is still not sufficient to bridge the growing gap between supply and demand. This problem is compounded further by the lead time required to bring a discovery on stream (Figure-1). The development of oil and gas fields covers a wide range of activities (Figure-1). Some of these become major hurdles leading to delays. This paper examines these hurdles and proposes measures for accelerating the field development process.

Infrastructure & Policies

The infrastructure facilities for processing, transmission and use of petroleum have expanded considerably over the years. However, the pace and trends have not developed freely. Policies of Government of Pakistan (GOP) were also restrictive during the early stages, but have shown marked transformation in the positive direction during recent years. Constraints and bottleneck still exist which are identified with possible remedial actions.

Gas Transmission Network

The existing gas transmission network connects only the major fields like Sui, Pirkoh, Loti, Badin block and northern Potwar fields (Figure-2). It also connects some smaller gas fields, due to their proximity with the network. However, numerous recently discovered gas fields remain undeveloped due to their relative distance from transmission lines.

Oil Transportation & Refining

Only four of the producing oil fields are connected to pipelines transporting about 20,000 barrels per day. The rest of the oil production is transported by the limited number of road tankers, as no transmission network exists to connect remaining oil fields. Next to transportation is shortage of refining capacity. Despite existing refining capacity of over 120,000 barrels per day, the three refineries, viz. ARL, PRL and NRL, are not able to handle the current level of crude oil production. This is due to certain design constraints that limit PRL and NRL to handle a maximum of 25,000 barrels per day of local crude. This local crude is blended with imported oil for maximum utilisation of designed capacity (80,000 barrels per day). However, modifications are being considered to increase refining capacity for local crude oil.

Customers

With exception of Mari gas which mainly supplies to fertilizer plants, all of the natural gas is sold to three public sector organizations, viz SNGPL, SSGCL and WAPDA. This general restriction has reduced the list of customers readily available and a direct private market has not developed. The severity of the problem is magnified by the fact that gas producers and distributors work under one ministry whereas the end users work under others. This requires high degree of cooperation and coordination among various ministries for smooth and prompt operation of gas production, transmission and its utilization.

The acuteness of the problem is further enhanced when non-availability of infrastructure provides additional bottleneck for gas transmission from remote field to nearest consumption centre. As for gas producers, crude oil producers are also not allowed to sell oil to private sector, either local or foreign. With increasing refining bottlenecks the development of oil discoveries are delayed due to lack of outlets. Producers on the other hand, particularly those of light condensate (generally in small quantities) from gas fields, dispose their condensate as a waste by-product.

Pricing

The pricing of energy products is regulated by the government at every stage. Upto the late 80's poor pricing policies caused severe distortion in energy pricing structure. This discouraged exploration, and development work decreased for discovered fields and their downstream set ups. However, GOP rectified the situation to a limited extent by modifying the producer prices for gas. This led to renewed interest in petroleum exploration. Still, the undecided discounts remain as points of discontent as the discount level acceptable to GOP are applicable to low risk, low cost and high producing areas which is seldom the case. The level of return on investment is therefore not attractive enough for investors to continue investing.

The recent policy changes by GOP has led to substantial increase in petroleum exploration as nearly 60 per cent of the country's prospective area had been leased by September 1991. However, considerable thought is still needed to counter the above mentioned factors discouraging field development and production. Some suggestions in this regard are":- a) A task force be set up by the GOP with representatives from all government agencies involved in energy production, transportation and utilisation. This task force should be given clearly defined policies and the authority to act independently within these policy guidelines, with the basic objective of achieving self-sufficiency in energy production within the next 5-10 years. The task force should be responsible to:

i) advise, within a specified time frame, a customer, pipelines and end user once the field is appraised.

ii) ensure availability of adequate infrastructure for transportation and refining. b) Incentives should be given to the private sector for development of product transport pipelines as a service industry. c) The price of gas for the producer should be on full parity energy equivalent basis. Discounts should be predetermined based on prospects of the area, exploratory and development cost, level of reserves and production. Incentives should be given for high risk and high cost areas, low reserves and production levels, on the same basis as discounts. d) In case of gas to be used as feed stock, value of non-hydrocarbon constituents, to be used in chemical process, should be assigned in addition to that determined on an energy equivalent basis. This additional price should be fixed by the time a customer is assigned. e) The producers price for LPG should also be based on full parity energy equivalent basis. In addition, incentives should be provided for setting up LPG recovery facilities.

Field Development

Development of a field covers a variety of activities that have to be executed in their proper order and timing so as to accelerate the pace of development. For prompt execution of a development plan, following aspects are worth mentioning.

Reservoir Appraisal

The critical activity in determining the development of petroleum reservoirs is reservoir appraisal. Since the entire development plan including well requirements and process plant design are based on appraisal phase data acquisition, it needs to be emphasized that this must be undertaken thoroughly with every detail being covered. Delays due to inadequate or non-availability of data are observed very frequently. This not only affects the entire project schedule but also results in extra expenditure. Critical thought must therefore be given to the following data acquisition programme during the appraisal stage: a) Type and coverage of seismic b) Coring of reservoir sections c) Wireline logging d) Formation testing e) Reservoir fluid sampling

Project Execution

The activity normally falling on the critical path during the development of a petroleum reservoir is installation of processing facilities. The critical nature of this activity is enhanced as most of the operators are geared for exploratory work or production operations and do not have the manpower to execute such projects through in house resources. It is, therefore, imperative that external resources be capitalize on, and integrated with the operator's project team to effectively execute a processing facility project.

The effectiveness of such integration and cooperation not only influences front end development schedule and cost but also has a significant impact on long term costs for production, operations and maintenance. One of the main objectives of the operator should therefore be to create a project management organisation which would provide performance, coordination and control of all activities. There are several types of organisational relationships prevalent in the industry. We will, however, discuss the one which may be expedient for the project. This typed of methodology developed with offshore exploration in the developed countries, but has only been applied to a limited extent in Pakistan.

Integrated Management &

Turnkey Execution

Project execution for this type of methodology needs to be split into three distinctive phases. The first phase of the project is carried out in house for conceptual detailing of studies required for formulating the project. Once the initial scope has been defined, a management services consultant (MSC) can be engaged and integrated with the operator's team. This blending of operator and consultant personnel ensures a better degree of control and coordination of the project.

The operator generally provides the key personnel with decision making authority whereas the MSC provides the rest of the team. The MSC is responsible for designing, tendering, processing, reviewing and checking of information and putting up recommendations for approval to the operator's managers. The operators' managers, therefore, have time for decision making. Since they have a global view of the activities, accomplishment of project goals is made relatively easier. Third phase of the project starts from award of contract for project works. These would be given on a lump sum turnkey basis and would include all activities from verification of design and equipment sizing to material procurement and installation/commissioning.

This type of a contract requires detailed design to be essentially complete. The time required for actual ground work to start is also longer for such contracts. However, once the contract is awarded physical work takes a shorter time and involvement of the operator is limited to quality assurance and control. In order to effectively handle the project while ensuring conformance to quality, schedule and cost, it is recommended that the number of activities being directly supervised and coordinated by the operator should be kept at the minimum possible. Under these conditions the operator can devote more effort on overall project management.

Turnkey Drilling

The concept of turnkey drilling has been prevalent on the international scene to a limited extent. However, in recent years this has been expanded to include not just the drilling services but also allied services. This is now being further expanded to include data acquisition services as well. This concept of turnkey well drilling services would therefore include provision of equipment and services for drilling, cementing, deviated drilling, mud engineering, mud logging, wireline logging and formation testing. Integrating all such activities into a coordinated service would considerably improve the well completion time resulting in considerable cost savings. From a project management point of view, this would simplify coordinating problems among various resources and services.

References

[1.] Sohail, H.M.; "Practical Measures for Promotion of Exploration in Developing Countries", Journal of Petroleum Technology, October, 1991. [2.] Dietmar Winje; "A Framework for Formulating Policies for Fossile Fuels in Oil Importing Developing Countries" paper presented at International Symposium on Petroleum for the Future organized by Government of Pakistan, Islamabad, January, 1988. [3.] Khan, M.A. and Ahmad, M.: "Development in the Utilization of Pakistan's Gas Resources", paper presented at GASTECH 88, Kuala Lumpur, Malaysia, October, 1988.
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Author:Ahmad, Mausuf; Raza, S.M.
Publication:Economic Review
Date:Feb 1, 1992
Words:1876
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