Financing Thermal Operations
Authors: Sonosky J.M. 
Published: December 2007

Because the basic considerations involved in arriving at a sound loan for thermal operations are essentially the same as they are for any type of oil and gas production loan, the important concepts and considerations are reviewed. These are related to specific problems peculiar to thermal operations, and more particularly to steam-soak projects in California. The importance of a reasonable production forecast is stressed, as are diversification, rate of expenditure, and evaluation of the potential mechanical and reservoir problems which may be encountered. Examples of financing programs are presented which are based on actual and hypothetical production performance data.

Introduction

The recent emphasis on thermal recovery has created an increased demand for capital to purchase and install a great variety of specialized field equipment. The hope of obtaining greatly, increased production rates and ultimate recoveries exceeding 50 per cent of the original oil in place has resulted in thermal recovery projects ranging from small one-lease operations by individuals to regional programs by major oil companies. Drilling programs have flourished in areas previously regarded as uneconomic for further development. Although the costs of thermal recovery are high. and capital is being expended for production from the lowest-priced crude group, new refinery techniques such as fluid coking, and hydrocracking have made heavy crude more economically attractive. The immediate need for capital and the small amount of historical data have complicated the problem of satisfying the financial needs of operators engaged in thermal recovery. The purpose of this paper is to discuss some of the problems, and to offer data and examples to support the present approach to financing these projects. The various types of thermal mechanisms will be mentioned, but the steam-soak method, which is creating the greatest demand for funds at the present time, is emphasized. As a basis for the discussion, a review of previously published information is presented on the financing of primary, and secondary production. This will then be related to the specific problem of financing the so-called steam floods.

Thermal Methods of Recovery

Thermal recovery has been defined as a method whereby heat is introduced into a reservoir to raise its temperature. As a result of the temperature increase. many production mechanisms occur to increase oil recovery. This definition does not mention secondary oil recovery. Although certain methods involve secondary recovery as that term is generally used and accepted by the industry, some thermal processes must be considered as assisted recovery mechanisms. Ultimate recovery by thermal methods may be higher than would be expected under normal primary operations, but should not necessarily increase recoveries by factors commonly associated with more conventional types of injection programs. Furthermore, the underlying concept of profitability must always be kept in mind, whether the project is a true secondary recovery operation or an assisted recovery program. The increase in production rate or in ultimate recovery is not sufficient to warrant the additional capital expenditures required unless the project is capable of operation at a profit, and preferably at a rate-of-return at least as attractive as other production investment opportunities.

Down-Hole Heaters

Various types of down-hole heaters have been used for many years to assist the pumping of heavy, viscous crudes. Many wells could not have continued producing without them. and, although heaters are usually placed in low-volume wells of the stripper category, a substantial amount of oil has been produced which otherwise would probably have remained in the reservoir without the use of heaters. For estimating reserves and for production financing, oil produced in this manner is generally considered as primary production. Driving energy is not supplied to the reservoir, and little, if any, effect of the heat is induced or retained beyond the immediate vicinity of the wellbore.

Hot Water Floods

A considerable amount of research is being done with hot water floods. The nature of the drive mechanism results in considerable delay in achieving production increases. and production is obtained only during a relatively brief interval at high rates. Although capital expenditures are not considered excessive by normal standards of secondary recovery. cash flow may be delayed sufficiently to preclude bank financing.

JPT