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Analysis

Heavy Oil Challenge

Wed, 01/25/2012 - 11:41

One of Pemex’s greatest challenges, aside from improving production at mature fields and entering into new areas such as deepwater, is dealing with the fact that much of its crude reserves are composed of heavy oil, which does not flow easily and therefore makes extraction and pumping much harder. Heavy crude oil is defined as heavy because its density is higher than light crude oil, and also has higher viscosity and heavier molecular composition. According to the American Petroleum Institute, heavy oil has an API gravity of less than 22.3°, while the International Energy Agency classifies oil with an API gravity of less than 20° as heavy. The API scale was designed based on the density of crude oil relative to the density of water, with API gravity of 10° being equal to water density. Only extra heavy crude, with density below 10° API, is heavier than water and thus sinks.

Reservoir temperatures generally vary from low to medium where heavy oil is found, and high temperatures are rare. Normally, gas content in heavy oil reservoirs is low, but a heavy oil accumulation may also have an overlying gas cap. Mobility of heavy oil can be calculated by assessing the viscosity of a reserve and the permeability of the reservoir rock. In areas where the oil is heavy and the permeability of the rock is low, the oil can be so hard to remove from the subsoil that techniques to aid reservoir flow may be required from the first day of production. Heavy oil deposits vary in characteristics from field to field, and therefore recovery factors vary in each place.

Figures from December 2011 show that of Pemex’s total 2.56 million bbl/day crude production, 1.39 million barrels were classified as heavy oil. Because of the challenges associated with heavy oil, the price is generally heavily discounted in comparison to regular crude. In 2011, Istmo light crude (33.6° API) and the superlight Olmeca Crude (39.3° API) reached an average realized price of US$110.47 per barrel and US$113.23 per barrel respectively, while the heavy Maya crude (22° API) was exported at an average price of US$106.14 per barrel, according to Pemex statistics.

Pemex is not the only oil company to face the heavy oil challenge. Statoil has three fields in the early development stages where heavy oil will have to be addressed: the Peregrino project, a deepwater field in Brazilian waters, and two projects in the UK, Mariner and Bressay. However, following the UK’s decision to raise taxes for the petroleum industry, Statoil put its two UK projects on hold. This move highlighted the projects’ marginal nature for Statoil. Despite the fact that recoverable reserves are estimated at 600 million barrels, the company is willing to hold out for better financial conditions to develop its heavy oil projects.

In Mexico, heavy oil has been a reality for many years. As a result, the CNH is confident that Pemex is experienced enough to deal effectively with the challenge of producing extra heavy oil. Edgar Rangel Germán, Commissioner at the CNH, says that, in the end, the Ku-Maloob-Zaap (KMZ) area, known for heavy oil production, will prove a firm knowledge base for Pemex’s foray into extra-heavy crude production. “All the knowledge that Pemex has gained from its history of dealing with heavy oil both onshore and in shallow waters will be applied to developing these extra heavy oil fields, and the crude will become an important part of the Mexican oil basket. There is still everything to be done in terms of development, but I guarantee that this will happen, and we will see extra-heavy crude production before we see production from Mexican deepwater assets. In order for this to become a reality, we have to rely on technology. The demand for such technology is present in all parts of the world, from Canada and the US, to Mexico, Venezuela and Colombia, so I am confident in the fact that developing this technology will be a priority for leading international oilfield service companies and operators. By combining this technology with Pemex’s experience of drilling for heavy oil in shallow waters, we will be successful.”

Rangel Germán believes that due to the opportunities afforded by integrated service contracts, a partnership with an international company to develop these heavy oil reserves might be an option. However, rather than heavy oil being a technological concern for Pemex, execution capability may stop the NOC from developing its reserves.

Jaime Buitrago, President of ExxonMobil Ventures México, believes that whilst Pemex can ably produce heavy oil in shallow waters and onshore, it might prove too challenging for the NOC in deepwater, where the company lacks vital experience. “The combination of difficult fluids and a difficult environment makes it particularly challenging. It is an excellent example of how important it is to have the proper balance of risk and rewards and solid alignment between the parties in the presence of subsurface or geological risk.”