Nansen G. Saleri
Chief Executive Officer and President
View from the Top

Implementing Improved Oil Recovery

Tue, 01/22/2013 - 14:29

Q: How do the geology and the historical production in Mexico compare to other oil-producing countries?

A: Across the entire planet, both in the oil and gas industry and in other industries, technology is driving transformation. New ways of approaching challenges are becoming the norm, and this has substantial consequences for the oil and gas industry. I can think of no better example of this than the oil and gas renaissance that is currently taking place in the US. This did not happen because of politics or legislation: the turnaround was a direct consequence of the technology revolution. In the past, energy independence was not considered to be a possibility for the US, but today it is a big part of the American energy discussion. The same thing can and will happen in Mexico, and Pemex will drive this evolution.

Q: How effectively has Pemex used new technologies for enhanced oil recovery (EOR) over the decade since Cantarell began its decline?

A: A new phase in Pemex’s development has already begun. For the first time in the last decade, Pemex has nearly stabilized production at around 2.5 million b/d. If structured properly, and supported by appropriate investments and technologies focused on human management support initiatives, the company can target a much higher production figure of around 3 million b/d over the coming years.

The selection, application, follow-up and due diligence of technology applications is not a trivial matter. This is where organizational capabilities come in, and operators must have the right structure and organization, relationships and knowledge management. It is not just about the right investment level, but also about planning this investment well. Pemex is just entering that phase. I give the NOC very high marks for the initiatives and direction it has embarked on so far.

EOR is part of a much larger portfolio that I call IOR (improved oil recovery). EOR deals specifically with the displacement efficiency of a reservoir, which is only one small part of IOR, which includes horizontal wells, new- generation multilateral wells, and maximum reservoir contact (MRC) wells, something that I introduced at Saudi Aramco, which are typically 10km structures within the reservoir. Computer technology has also driven rapid development of IOR techniques, and an incredible amount of intelligence has been brought to the design of wells, facilities, and the exploitation of oil as a result. Wells today are no longer the inanimate objects they once were: they have automatic controls, automatic shutdowns, and the ability to separate different fluids.

Q: To what extent can the use of IOR solutions be applied dynamically? How much planning is required?

A: The best approach is a mix of both: operators can plan ahead, but they also need to make decisions on a day-by-day basis. This is exactly what is happening at both Cantarell and Ku-Maloob-Zaap today. Also, there are a number of new techniques and extraction methods being developed that will require customized analysis and planning before they can be applied elsewhere. Mexico does not have homogeneous geology, so technologies have to be evaluated for their applicability at each reservoir.

Q: What are your perspectives on the production potential of Chicontepec?

A: Chicontepec by itself is a huge prize because of its size and the need for a new way of thinking regarding its exploitation. One of the first challenges of Mexico and its oil and gas institutions, beginning with its research and technology centers, is to first determine the size of the prize, because Pemex has to know this to be able to plan the amount of investment and where to focus it. That in itself is a challenge, and it is very important for future generations.

The geology of Chicontepec straddles the line between conventional and unconventional, and therefore some of the technological miracles that have been witnessed in the US with shale gas development cannot be directly imported to the region. Each technology and technique needs to be assessed on an individual basis. This is the dilemma that Pemex is facing. Based on QRI’s experience with unconventional resources in other parts of the world, we would recommend a front-loaded knowledge management generation program, while continuing to incrementally increase production. Once the knowledge management component of the program is completed, or at least 80% achieved, Pemex could accelerate production, because this knowledge makes any development program much less risky. An ambitious drilling program today would most likely result in a higher chance of failure than success. The alternative to this is to continue drilling at a modest pace in areas where there is a lot of knowledge and control, and risk is minimized. At the same time Pemex could embark on data management and analysis in a very heavily loaded diagnostics phase, once the key aspects such as well design optimization have been worked out.

Today the code has not been broken that will unlock production at Chicontepec. It will be broken: 100 years from now, when people look back, they will say that in 2012, Pemex was still struggling, but the breakthrough came soon afterwards. Right now, it is within striking distance, but it requires very focused effort. It is only a matter of time until Pemex finds the best ways of extracting oil there. Once that happens, we can have a

massive capital investment program, which could lead to production of 500,000-700,000 b/d or even higher. This same philosophy can be applied to all of Pemex’s current challenges. The secret to increasing the country’s daily oil production can be seen as one huge risk management exercise. The key to the success of this exercise is good management.

Q: How do you strike the balance with companies like Pemex, which have contrasting priorities between increasing production and adding reserves?

A: These management decisions are challenges for every oil company around the world. Exxon, for example, is sitting on a diminishing reserves base. How much do you invest in the future, which is not going to bring a return to investors right now, and how much do you invest in the present? This problem is even more magnified in the case of Pemex, where the pressures to increase production are very well understood; they are not exaggerated at all, and the NOC has no choice but to work towards this goal. The answer is almost obvious: these oil companies have to find the right balance between these two activities.