IOR TECHNOLOGY: ENHANCING PRODUCTION WHAT IS IMPROVED OIL RECOVERY? - - PowerPoint PPT Presentation

IOR TECHNOLOGY:

ENHANCING PRODUCTION

HOW? GOAL? Miscible gas is injected into a well to begin the Huff n’ Puff (HnP)

• process. The gas is absorbed into

the oil causing it to swell, reducing the viscosity and increasing the mobility of the oil. Increased oil mobility and reservoir pressure allows the oil to move through the rock and gives the reservoir the energy needed to push the oil to the surface. Re-pressurize the reservoir and energize the physical properties of the oil. Increased oil mobility and reservoir energy will allow recovery of more of the oil in place. IOR can result in extended economic well life, recovery of more oil and accelerated primary production.

WHAT IS IMPROVED OIL RECOVERY?

Any of various methods, chiefly reservoir drive mechanisms and enhanced recovery techniques, designed to improve the flow of hydrocarbons from the reservoir to the wellbore to increase oil recovery beyond that achieved with primary production alone.

IOR Technology: Enhancing Production 2

HOW DOES HUFF N’ PUFF GAS INJECTION WORK?

IOR Technology: Enhancing Production 3

(1) Gas Purchase Pipeline will be used for start up and to augment recycled gas as necessary.

Huff n’ Puff (HnP) miscible gas injection is the optimal IOR method for the Eagle Ford reservoir and has been demonstrated as technically feasible through projects already in place.

HnP Well Produced Oil Produced Water Produced Gas Gas/Liquid Separation Recycle Gas Treatment Primary Compression Step-Up Compression Make-up or Working Gas

(1)

WHERE HAS IOR BEEN IMPLEMENTED?

Five operators have Huff n’ Puff operations on approximately 200 wells within the Eagle Ford.

IOR Technology: Enhancing Production 4

Potential CHK IOR Project Industry IOR Project Oil Volatile Oil Condensate/Wet Gas Dry Gas CHK Leasehold

Primary Economic Limit

IOR Uplift:

30 – 70% Incremental to Primary EUR

Extension of Economic Life

Primary IOR

WHAT ARE THE BENEFITS OF IOR?

IOR Technology: Enhancing Production 5

Result is a well that has an extended economic life and an acceleration in the rate of production.

IOR adds energy to the reservoir, which increases the amount of oil that will ultimately be recovered from a well and accelerates the production that would have occurred later in the well’s life. IOR increases the Estimated Ultimate Recovery (EUR) of a well by 30 – 70% compared to primary recovery alone. Primary recovery alone recovers only 5 – 10% of the Original Oil in Place (OOIP); IOR increases that recovery to 7 – 17% of OOIP, which is a dramatic increase. IOR attains results without drilling or completing additional wells and without requiring additional local resources such as sand and water.

WHAT IS THE IOR INVESTMENT TIMELINE?

A timely decision to implement IOR is required during the later stages of the primary development phase of a play. Eagle Ford IOR projects have demonstrated technical success after 2 – 6 years of primary production. Approximately one year of design and geologic and petroleum system evaluation is required to assess the viability of IOR in a given area. Another year is required to construct, pilot test and optimize IOR. Where utilized, IOR adds incremental production and extends a well’s economic life; however, significant up front investment is required to reduce

• perator risk.

IOR Technology: Enhancing Production 6

Exploration and Appraisal Phase Full-field Primary Development Phase Optimize and Infill Phase IOR Decision Point Maintenance and Decline Phase

Oil Field Life Cycle

Cashflow

+

• Field Life

IOR Production Primary Production Net Cashflow

Chesapeake makes a substantial investment in science and engineering to determine project viability and justify IOR expense.

WHAT DOES A TYPICAL IOR PROJECT LOOK LIKE?

IOR Technology: Enhancing Production 7

Compressor Station

Pilot Well Field Design

HnP Well Monitor Well Containment Well

1 2 3 4 5 6 7 8 9 10 11

The IOR process does not typically involve drilling new

• wells. Rather existing wells are utilized in one of three ways
• utlined below.
• Huff n’ Puff well (HnP)

A well that will be both an active injection and production well. This well will be on a varying cycle of injection (huff), soak and puff (production).

• Containment well

A well that limits the movement of gas beyond the immediate IOR injection

• areas. Well will be equipped with gas lift production equipment. This well acts

as a boundary to the IOR project.

• Monitor well

A well that will be used to monitor nearby HnP wells. Well will be shut in during pilot for scientific purposes. This well will later be converted to containment or HnP based on results.

IOR generic pilot scope and well layout

• HnP wells will see cyclic injection, soak and flowback
• Gas is recycled back to IOR compression station
• Liquids are sent to existing production facilities
• Centralized compression to minimize IOR surface impact
• Actual wellfield design will vary from area to area

During primary development, wells experience natural decline in production and reservoir

• pressure. (see oil production line in figure)

Gas injection during IOR will re-pressurize the reservoir to above the bubble point, resulting in increased oil mobility and increased oil recovery. More gas is required to re-pressurize reservoirs that have produced more primary fluids by producing longer. (see red bars in figure) Economics of HnP are dependent on commodity prices (i.e. gas price, oil price). Low gas prices and high oil prices are beneficial for HnP.

WHEN SHOULD A WELL BE CONVERTED TO IOR?

IOR Technology: Enhancing Production 8

Conversion to IOR is more expensive to implement the longer a well is produced via primary recovery.

Primary Oil Production Rate, bopd IOR Gas Purchase Need, bcf IOR Optimal Implementation Window

Optimal IOR Investment Decision Point

Years on Primary Production Increasing uncertainty and more gas needed for IOR re-pressurization as wells deplete Low depletion, Low gas purchase 2 4 6 8 10 12 14 16

WHAT DOES A TYPICAL IOR PROJECT LOOK LIKE?

IOR Technology: Enhancing Production 9

IOR build out is executed in three phases:

Phase 3: Full-Field Phase 2: Expansion Phase 1: Pilot

Existing wells, facilities and right of ways are leveraged Project is scaled with minimal additional infrastructure

Existing Wellbores Existing Production Lines IOR Injection Lines Existing Production Facility IOR Compression Facility Existing Well Pad

WHAT DOES A TYPICAL IOR PROJECT LOOK LIKE ON THE SURFACE?

IOR Technology: Enhancing Production 10

Primary Development IOR Development

Key Operational Difference Between Primary and IOR Unconventional Development Primary Development IOR Development

Drilling and Completion of Wells Hydraulic Fracturing to Access Reserves Artificial Lift for Pumping Wells Buildout of Well Pads and Production Gathering Injection Into Existing Wells Gas Injection to Swell/Mobilize Existing Resources Injection Energy Used to Lift Wells Existing Infrastructure Plus Parallel Injection System

BEFORE AFTER BEFORE AFTER

HOW LONG DOES AN IOR PROJECT TAKE?

IOR projects take longer to develop than primary drilling

Approximately two years to begin gas injection and another six months for pilot testing. Timely communication and execution of unit agreement and infrastructure approvals influence schedule.

IOR Technology: Enhancing Production 11

Early Work and Design – prospect evaluation, conceptual engineering, landowner approval, and JV partner approval Procurement, Construction and Commissioning – detailed engineering, procure compression and other long lead equipment, construct facilities, and construct gas supply line Testing and Optimization – operate the facilities to complete multiple HnP cycles; evaluate data and optimize operations Execution – maximize production during project life and expand IOR to other parts of the field

Execution Testing and Optimization Procurement, Construction and Commissioning Early Work and Design

IOR Development Schedule 12 months 15 months 6 months 4 – 8 years

PRIMARY DEVELOPMENT VS. IOR

IOR has lower capital costs (capex), but requires two years to design and implement compared to a mobilization of months for drilling and completing new wells (primary development). Early investments in IOR capex are not offset by revenues for two to three years. IOR has higher operating costs (opex) due to

• perating compression and purchase of working

gas; impacts revenue to recoup capex. (longer time to breakeven) Economics are sensitive to opex, which can be impacted by the volume and price of working and fuel gas.

IOR Technology: Enhancing Production 12 Primary IOR

Capital $6 – 10mm/well $1 – 2mm/well OPEX 1x Primary 2 – 4x Primary Cycle Time 9 – 12 months 18 – 36 months Project Life Varies 4 – 10 years EBITDA Profile Majority in initial 2 – 3 years More evenly distributed Payout 1 – 3 years 2 – 5 years Ability to Reuse Major Capital Equipment No Yes

Oil Per IOR Project Cumulative Cashflow Oil Per Horizontal Well

IOR Incremental Oil Production vs. Cumulative Cashflow

Project Life

More consistent production profile Decreasing Margins in Outer Years

Primary Oil Production vs. Cumulative Cashflow

Well Life

+

• Production

+

• Cashflow

WILL MY LEASE CHANGE?

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In order to conduct an IOR project, it will be necessary to amend the underlying lease(s) to effectively:

• Recognize IOR project operations as “operations” that perpetuate the lease(s) even if

there may be periods of cessation of production or other operations that exceed 90 days.

• Address the accounting for and payment of royalties on gas to allow Lessee to produce,

use, recycle and sell “Working Gas” without the obligation to pay royalties thereon.

• Oil royalties will be based on the amount actually produced and sold.
• Address the unitization and allocation of production from wells within the applicable IOR

Project Area to the pooled units or tracts in which the lease(s) have been included.

The estimates included in the foregoing slides are for demonstrative purposes only and are not representations or guarantees regarding future production or performance. Although Chesapeake believes the estimates to be reasonable, they are subject to change and actual results may vary

• significantly. These slides are meant to demonstrate the potential related to the IOR Project but

are not to be relied upon as a prediction of actual future performance. Learn more at CHK.com/IOR