Financing Oil And Gas Operations Dependent On Fluid Injection
Authors: Dodson C.R. , Sonosky J.M. 
Published: December 2007

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This paper is to be presented at the 38th Annual Fall Meeting of the Society of Petroleum Engineers of AIME in New Orleans, La., on October 6–9, 1963, and is considered the property of the Society of Petroleum Engineers. Permission to publish is hereby restricted to an abstract of not more than 300 words, with no illustrations, unless the paper is specifically released to the press by the Editor of the JOURNAL OF PETROLEUM TECHNOLOGY or the Executive Secretary. Such abstract should contain conspicuous acknowledgment of where and by whom the paper is presented. Publication elsewhere after publication in the JOURNAL OF PETROLEUM TECHNOLOGY or SOCIETY OF PETROLEUM ENGINEERS JOURNAL is granted on request, providing proper credit is given that publication and the original presentation of the paper.

Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers office. Such discussion may be presented at the above meeting and considered for publication in one of the two SPE magazines with the paper.

Engineering and economic considerations and the various factors which influence the amount of financing, namely, the type of the fluid injection project, stage of development, diversification, primary production remaining, borrower's control of the program are reviewed. Also discussed are problems which commonly arise and cause delay in the program and departure from the original production forecast. Examples are given to show the effect on the loan repayment when the predicted rates of cash flow are not realized.

Introduction

The financing of fluid injection projects by loans has become feasible and increasingly important to operators in recent years. This is due to more confidence in results and the steadily increasing volume of oil and gas being produced by these methods, however, the engineering and credit analysis for these loans involves conditions which are more complicated than generally encountered in primary production. Sound loans can be made when the analysis is based on proper use of engineering, economics, experience, and judgment. The objective of this paper is to review some of the problems and to illustrate the various results by several examples of actual loans and a hypothetical case.

For the purpose of this paper, fluid injection projects are defined as projects dependent on the production of reserves in addition to primary reserves by supplementing natural reservoir energy with the injection of fluids, such as water, air, natural gas, LFG, or carbon dioxide. The term, financing, as defined as the obtaining of funds from outside sources, such as commercial banks, insurance companies, and pension trusts, in contrast to internal sources.

The engineering procedure for financing fluid injection, or secondary recovery projects, is essentially the same as that for primary production and development programs. The highest possible standards must be met in the determination of oil and gas reserves, production rates, operating net revenue, and Fair Market Value.

This work must be done by petroleum engineers who are thoroughly experienced in field operations and estimating, oil and gas reservoirs. However, it is recognized that regardless of our technological abilities and confidence in the engineering results, oil loans will always mean a certain amount of risk to the lender.