bluuebunny/crossref_metadata_2025 huggingface dataset:
Critical Gas Saturation and Relative Permeability During Depressurization in the Far Field and the Near-Wellbore Region
Authors: Egermann P. , Vizika O.
Published: December 2007

Depressurization of a virgin or waterflooded oil reservoir results in the appearance of a solution gas saturation. Above a saturation threshold, this gas becomes mobile and can be produced. Knowledge of the critical gas saturation (Sgc) and the subsequent relative permeabilities (Kr) in the far field and the near-wellbore region has a tremendous impact on gas and oil production forecasts.

The present paper provides a new methodology to obtain representative Kr and Sgc values for a depressurization process. Specific experiments are presented in which undersaturated oil was injected upstream at a fixed rate whereas downstream the pressure was controlled in order to reproduce a drawdown. Evolution of pressure was recorded and in-situ gas saturations measured by CT-scanner. Two initial conditions were considered, fully oil saturated and at irreducible water saturation. Influence of the drawdown scheme was also explored. Transient evolution of the gas saturation profile in the core is clearly shown. Kr are deduced from history matching. They are finally compared to the Kr derived from gas injection experiments.

It is demonstrated that gas/oil Kr shape is strongly affected by the way the gas appears and is distributed in the porous medium. For solution gas drive, oil relative permeability is higher and gas relative permeability is smaller than for gas injection.

Concerning critical gas saturation, the experiments show two types of gas mobility depending on the operational conditions: mobility threshold attained from connection of bubbles or from mobilization of a population of separate bubbles. For the first type, Sgc can be linked to the values obtained through static experiments at fixed depletion rate.
A Fully Compositional Streamline Simulator
Authors: Crane Martha , Bratvedt Frode , Bratvedt Kyrre , Childs Paul , Olufsen Rudi
Published: December 2007

A new 3-D three phase compositional reservoir simulator based on extension of the streamline method has been developed. This paper will focus on the new methods developed for compositional streamline simulation as well as the advantages and disadvantages of this strategy compared with more traditional approaches. Comparisons with a commercially available finite difference simulator will both validate the method and illustrate the cases in which this method is useful to the reservoir engineer.
Managing Uncertainties in Oman Liquified Natural Gas Gas-Condensate Reservoir Development
Authors: Al-Shaidi Salman M. , Perriman Belinda J. , Vogel Koen
Published: December 2007

Oman LNG upstream project is to deliver a sustainable gas production in excess of 40 Million m3/d (1400 million cuft/d) over a 25 year project life to Oman LNG. The full production, commenced Q1 2000, is planned to come from three deep gas-condensate fields (Saih Rawl, Barik and Saih Nihayda) situated in the Central Oman Area. The three gas-condensate fields contain gas and condensate reserves in excess of 18 tcf, and 0.5 billion bbl respectively. The complex phase behavior of such rich gas-condensate fluid coupled with low reservoir quality has made reservoir development options challenging, sometimes reaching the limit of conventional simulation and stimulation

This paper will present the state-of-the-art multidisciplinary approach followed in managing reservoir uncertainties in Saih Rawl and Barik fields. As a result both static and dynamic uncertainties have been reduced whilst building up capacity to meet contractual requirements.
Comparison of the Performance of Vertical and Horizontal Wells in Gas-Condensate Reservoirs
Authors: Dehane A. , Tiab D. , Osisanya S. O.
Published: December 2007

Properties of gas-condensate reservoirs are particularly difficult to study due to the composition and phase changes of light components that occur during the reservoir depletion. At the first stage of their discovery, these reservoirs behave like gas reservoirs during depletion. Once the dew point pressure is reached at reservoir conditions of pressure and temperature a retrograde condensation phase develops in the reservoir. Liquid condensation in the formation can result in severe loss of well deliverability and therefore of gas and condensate recovery, which will certainly lead to a loss of income.

In this study, the performance of horizontal wells and vertical wells in gas condensate reservoirs is investigated under various depletion schemes. The expected low drawdown pressure for horizontal well, compared to vertical well for the same flow rate, considerably reduces retrograde condensation. A reservoir simulator is used to compare liquid saturation profiles for horizontal and vertical wells in gas condensate reservoirs. The influence of the horizontal well length section and reservoir thickness on horizontal well productivity, and condensate recovery were also studied. Another factor investigated in this study is the effect of drilling a horizontal well in a gas condensate reservoir that has already been developed by vertical wells.

To illustrate the productivity increase due to the use of horizontal wells in gas condensate reservoirs, Djebel Bissa field (Figs. 1 and 2) data are presented and discussed using a compositional single well model (VIP simulator). The main results of this investigation are as follows: A smaller pressure drawdown for a horizontal well compared to that of a vertical well, eliminates or reduces liquid condensation in the reservoir.

Layers with higher capacity (kh) values contain the most liquid accumulations.
Fracture Geometry and Vertical Migration in Multilayered Formations from Inclined Wells
Authors: Sankaran Sathish , Nikolaou Michael , Economides Michael J.
Published: December 2007

Knowledge of the near-well fracture geometry and the connection with the ultimate fracture propagation are of great importance to hydraulic fracture design. This is particularly true in high-permeability reservoirs where the connectivity between the well and the fracture has been viewed as a critical element to the success of the well stimulation. In addition to the fracture geometry difficulties, fracture height migration, that is the vertical fracture growth outside of the target interval is, invariably, an undesirable occurrence (unless the fracture is designed to penetrate a multi-layered formation.) When the fracture propagates through adjoining-to-the-target layers, there arises an impending danger of proppant screen-out leading to excessive pressurization and subsequent termination of the process. Therefore, it is essential to control and contain a hydraulic fracture within its target layer and to minimize geometry complexities in the near-well zone. Because inclined wells are drilled frequently in the petroleum industry, this work aims at developing a model for predicting fracture migration heights and the crack paths in multi-layered formations penetrated by such wells. The dependence of fracture initiation conditions on well inclination and mechanical properties are used to predict the migration of fracture height into adjacent layers using fracture mechanics models. The model predictions can be used beneficially in planning hydraulic fractures and in anticipating fracture geometry, thus, providing drilling trajectory guidelines. By controlling the fracturing fluid pressure gradient it is possible to affect the fracture geometry. A multi-layer approximation approach is presented to provide a formulation of the inclined well problem. The effects of well inclination and stress contrast on fracture height migration are studied and guidelines are offered on the desired well trajectories in view of property contrasts among layers for acceptable fracture geometries.
A Novel Approach to Acidizing of Carbonates: Case History From the Gulf of Suez in Egypt
Authors: Sharaf Mohamed , El-Enien Sarwat Abou , Raya Osama Abou , Waheed Arshad , Farouk Ehab
Published: December 2007

This case history develops through the drilling of a relatively underexplored and less promising limestone formation in the Gulf of Suez area of Egypt. The target formation, known as Thebes of Eocene Age, was "faulted" and the two separated pay sections presented different rock compositional scenarios. Even though the geological description broadly classified these zones as carbonates, the stimulation treatments designed for the two zones were totally different. The process that was undertaken in determining the best solution was based on the introduction of some novel analytical techniques and a comprehensive approach to acidizing-treatment design.

This paper details some of the new approaches that were used, including a composite log developed for carbonate-stimulation design. The emphasis on reservoir characterization in terms of its petrophysical properties and production capability is paramount in carbonates because of the extreme reservoir heterogeneity and a general noncorrelation between rock porosity and permeability. Furthermore, a new matrix acidizing simulator was run with input data from the composite log for modeling fluid distribution and skin evolution from the treatment. On the basis of these simulation runs, a couple of pre-emptive measures were taken to improve the treatment-fluid distribution profile.

Bottomhole pressure gauges in conjunction with real-time monitoring of skin evolution during the treatment were analyzed for determining the effectiveness and applicability of foamed treatments, in-situ crosslinked acid systems, and maximum pressure differential and injection rate (MAPDIR) techniques.

The post-stimulation production results and pressure-buildup surveys confirmed the success and effectiveness of the stimulation treatments.
A New Technique to Eliminate Severe Slugging in Pipeline/Riser Systems
Authors: Sarica Cem , Tengesdal Jarl Ø.
Published: December 2007

The field developments in deep waters (>6000 ft) are becoming a reality. Severe slugging conditions might occur at considerably high reservoir pressures, and the magnitude of the pressure fluctuations can be significantly high causing premature abandonment and reducing the ultimate recovery of the field. Considering the length of the deep-water risers, the severe slugging is expected to be more severe compared to the production systems installed in lesser depths. Therefore, the design of downstream facilities at the platform becomes very crucial considering the safety of the operation and the limited available space on the platform.

A novel technique is proposed to lessen or eliminate severe slugging in pipeline-riser systems applicable to all water depths. The idea is to transfer the pipeline gas (in-situ gas) to the riser at a point above the riser-base. The transfer process will reduce both the hydrostatic head in the riser and the pressure in the pipeline consequently lessening or eliminating the severe slugging. This can be considered as self-gas lifting (i.e., no gas injection is required). An existing severe slugging model based on one-dimensional drift flux formulation, has been modified to simulate the new severe slugging elimination method. The modified model has been verified by comparing it to the existing laboratory severe slugging data from several sources by selecting the transfer point as the riser base.
Concentric String Windows: Development, Testing and Field Experience
Authors: Blount C. G. , Gantt L. L. , Hearn D. D. , Kirk A. D. , Smith B. E.
Published: December 2007

Re-entry sidetracking has become an important development tool in the oilfields of the North Slope of Alaska. To date, approximately 220 wells have been sidetracked through existing production tubing in Alaska with coiled tubing. The easier candidates are diminishing in number as this cost effective re-entry technique is more widely applied.

Many of the recent candidate wells have required cutting a window through two concentric strings of tubulars. Some of the 2 string windows were performed without significant problems using proven window techniques including whipstock and cement window technology. However, difficulties were experienced when attempting to mill through concentric strings with large differences in size such as 3.5" tubing inside of 9-5/8" Casing.

This paper details the design criteria, testing and field implementation of tools and techniques used to mediate the problem encountered in achieving consistent window success for these more challenging dual string windows.
Steam-Water Capillary Pressure
Authors: Li Kewen , Horne Roland N.
Published: December 2007

Steam-water capillary pressure is very important in numerical simulation and reservoir engineering for steam injection into petroleum reservoirs and water injection into geothermal reservoirs. The significant mass transfer between steam and water phases makes it very difficult to measure steam-water capillary pressure using routine methods such as the semipermeable porous plate method and centrifuge method. Due to the difficulties in measuring steam-water capillary pressure, very few steam-water capillary pressure data are available. A steady-state flow method was deployed to measure steam-water capillary pressure curves using a modified X-ray CT technique to monitor and measure the water saturation and its distribution in the core sample. Experiments were conducted under near-adiabatic conditions controlled automatically by a computer. Steam-water capillary pressure was calculated using a formula derived from Kelvin's equation with the measured pressures and temperatures of the water phase. Both drainage and imbibition steam-water capillary pressure curves were obtained. The drainage and imbibition steam-water capillary pressures of the Berea sample used in this study were about 10 psi and 3.5 psi, respectively, at a water saturation of 30% and a temperature of 120°C. It was also confirmed experimentally that the lowering of vapor pressure was very small but the capillary pressure was significant for the experimental system used. This observation is consistent with thermodynamic analysis.
Restimulation Program Finds Success in Enhancing Recoverable Reserve
Authors: Ely John W. , Tiner Robert , Rothenberg Mark , Krupa Anthony , McDougal Fred , Conway Mike , Reeves Scott
Published: December 2007

Over the past 18 months the Gas Research Institute has initiated a restimulation study in wells in the Green River Basin, Piceance Basin and East Texas Cotton Valley Reservoirs.1 New specific diagnostic procedures have been utilized to select candidates as well as intensive laboratory studies have been conducted to select specific candidates for restimulation. This paper will report on the laboratory testing, which involved fluidizing beds of proppant from previous treatments and also report results of effects of various chemicals on specific reservoirs.

Several restimulation candidates case histories will be presented and a great deal of detail will be given in reference to refrac design, type of treatment and diagnostics utilized to ascertain success or failure of the treatments as well as production data. The program has illustrated that there are available diverting techniques that can function over long sections and achieve excellent stimulation. The authors will discuss laboratory testing procedures and specific recommendations in reference to selection of candidates and specific stimulation procedures that can be followed in various reservoirs.
PDC Bit Durability – Defining the Requirements, Vibration Effects, Optimization Medium, Drilling Efficiencies and Influences of Formation Drillability
Authors: Mensa-Wilmot Graham , Bits-GeoDiamond Smith , Calhoun Bill
Published: December 2007

Technological advancements, together with improved selection and application practices, have enhanced Polycrystalline Diamond Compact (PDC) bit performance. In addition to drilling faster, these bits are now drilling longer and extending their application envelopes. However in hard, abrasive and highly heterogeneous formations, PDC bit performance still lacks consistency and must be improved.

An important qualifier that needs to be optimized in order to enhance PDC bit performance in the harsh environments listed above is durability. However, the engineering efforts needed to define, quantify and explain the concept of PDC bit durability have been minimal. Current industry methods of improving durability have been very ineffective, because they focus on maximization and are based on "trial and error" processes. These approaches compromise the efficient shearing rock removal mechanism of PDC bits, thus their rate of penetration (ROP). They also neglect the relationships and influences formation drillability and vibration characteristics have on durability.

This paper will establish the differences and effects of durability maximization (DM) and optimization (DP) on PDC bit performance. It will establish the necessary medium for durability enhancement, and define the processes necessary for its quantification. The influences that formation drillability and vibration behavior have on durability optimization will also be discussed.

Laboratory analysis and field data showing DP’s effects on drilling efficiency and operational costs will also be presented. The paper will show how durability optimization enhances PDC bit performance in harsh environments.
Modeling of Complex Geometry Reservoirs
Authors: Zhao Gang , Thompson Leslie G.
Published: December 2007

Complex geometry reservoirs can be encountered in the field for variety of depositional and tectonic processes. For example, fluvial depositional environments may produce inter-branching channel reservoirs, or reservoirs consisting of relatively high permeability channels in communication with low-permeability splays.

This paper presents a general methodology for computing pressure responses and flow characteristics in complex geometry reservoirs. The proposed method consists of decomposing the original complex-geometry reservoir into a set of simple-geometry reservoirs, which interact with each other by transfer of fluid and equality of pressure over the regions where they are in hydraulic contact. Analytical solutions are written down for each of the simple reservoir components in terms of the unknown pressures and fluxes at their boundaries, and the coupled systems are solved for the desired wellbore pressure responses.

The method of sources and sinks is used to compute the pressure response in the Laplace domain and the results are inverted numerically using the Stehfest Inversion algorithm1. We present fast accurate methods of taking numerical Laplace transforms of the source/sink solutions that make the computations reasonably fast and efficient.

The proposed methodology can be extended to any system where the Laplace-space solution can be easily written in terms of integrals of real-space source/sink functions, including production at constant bottom-hole pressure, wellbore storage effects or naturally fractured systems. We demonstrate the applicability of the method by modeling branching channels and channel/splay systems.
Planning for a Large Oil Company Acquisition
Authors: Morefield F.L. , Power F.R. , Wellman M.R. , Bowe P.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Introduction

This paper reviews the planning by R. J. Reynolds Industries and its wholly owned subsidiary, American Independent Oil Co. (Aminoil), for the acquisition of the U. S. interests of Burmah Oil Co. This acquisition which was completed at midyear last year, was made for a cash consideration of $522 m This was one of the largest cash acquisitions in U. S. corporate history. There were some 65 people involved heavily in this acquisition people involved heavily in this acquisition effort, which spanned a period in excess of 1 year and cost about $2 million for outside services alone.

Following a brief description of the range of properties involved in this acquisition and the conditions under which this acquisition work was done, we shall discuss the specifications set for our approach, the scheduling of our work, the computer model developed for economic evaluation, and some of the other key ingredients that made this acquisition a successful and satisfying effort. This paper, however, will not cover the substantial petroleum engineering work — reservoir evaluation, cost and investment forecasting, risk assessment, etc. — that was fundamental to the property evaluation.

SPECIFICATIONS FOR OUR APPROACH

Burmah Oil Co. announced in March 1975 its intention to sell in one package the stock of two companies, Burmah Oil and Gas Co. (formerly Signal Oil and Gas Co., purchased by Burmah in Jan. 1974) and Burmah Oil Development, a company through which Burmah had invested independently some $200 million in leases and exploration offshore Louisiana and Texas. The total package of properties comprised exploration and production operations and marketing operations as follows.

Exploration and Production Operations

Huntington Beach field, a large and long-established producing field near Los Angeles, largely under secondary recovery, and a range of other California producing properties, particularly gas in the Sacramento area. particularly gas in the Sacramento area. Leases offshore Louisiana and Texas; some 84 blocks with an average interest of about 25 percent. Onshore Louisiana properties in partnership with John Mecom, centering on the partnership with John Mecom, centering on the established Lake Washington field.
Optimizing Treasury Growth With Proper Evaluation of Long Term Projects
Authors: Campbell Robert A. , Campbell J.M.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Industry relies on various economic parameters to select investment opportunities. parameters to select investment opportunities. Utilization of these parameters is not always consistent with corporate goals of maximizing treasury growth and maintaining liquidity. Several new parameters are presented here to illustrate shortcomings in the parameters currently in use and recently proposed. More importantly, we indicate why parameters for selecting projects are only models of corporate profitability and, like all models, do not apply profitability and, like all models, do not apply to every company at every point in time.

Introduction

There are many limitations on the conventional economic parameters—payout, leverage present worth, present worth/investment, rate present worth, present worth/investment, rate of return, and others. Although utilization of these parameters has not always resulted in achieving corporate goals, they continue to be used because they have been successful in generating corporate profits. However, in very few cases have profits been maximized and liquidity been maintained at all times.

The ideas to be presented will apply to all areas of the petroleum industry, but particularly to capital investment decisions. particularly to capital investment decisions. There are two main objectives to be presented. The first is to create an awareness of the limited flexibility offered by conventional economic parameters for investment decisions. parameters for investment decisions. The second objective is to present approaches that better evaluate the effect of different life projects on growth of the corporate treasury. projects on growth of the corporate treasury. Since all investment decision processes involve choosing between several alternatives that rarely have the same life span, this new approach should offer more realistic investment criteria.

The industry has maintained a profit position with the use of conventional economic position with the use of conventional economic parameters. However, with rapidly increasing parameters. However, with rapidly increasing costs and smaller reserves in new discoveries, the investment criteria utilized in decision making has become, and will continue to be, more critical than ever. The base income of most large corporations today is long-term projects that were initiated in the 1950's or projects that were initiated in the 1950's or early 1960's. In an attempt to replace production, most companies operating in the U.S. production, most companies operating in the U.S. are choosing high initial potential, short-term projects, and are foregoing participation in projects, and are foregoing participation in the long-term projects that would provide the base income of the future.
Project Financing
Authors: Atkins Samuel J. , Bridges Joe M.
Published: December 2007

"Project financing" refers to those financings whose source of repayment is limited to the revenue stream generated by a particular development. Companies use project financing to (1) raise capital, (2) project financing to (1) raise capital, (2) reduce financial exposure, and (3) reduce capital costs. Project loans can be broken down into three categories based on degree of parent company support. They are (1) total guaranty, (2) project facilities completion guaranty, and (3) limited guaranty.

Project financing can be designed to meet a company's exact needs and requirements at a lower over-all financing cost to the company.

Introduction

Project Financing:How is it define? What are the objectives? What types of project financing are used? What types of companies use project financing?

DEFINITION

Project financing can be used for many different types of projects, but this paper will be limited to financing paper will be limited to financing techniques used to finance the development of coal, oil, and gas reserves. The terms "project financing" or "project loan" are normally used to refer to those financings whose source of repayment is limited to the revenue stream generated by a particular development. particular development.

OBJECTIVES

As might be expected, different companies will have different reasons for using project financing, but their principal project financing, but their principal objectives will normally include one or more of the following three:Raise capitalReduce financial exposureReduce capital costs.
Liquified Natural Gas Ventures - Economics and Outlook
Authors: Herron E. Hunter
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

LNG projects under development will send Algerian supplies to Europe and the U.S., Southeast Asia is the major supplier of Japan. Further ventures are planned to export LNG from Alaska, Africa, Southeast Asia, the Middle East and Siberia. Economics are developed for judging their potential attractiveness. Southeast Asian - Japanese trades are shown to be the most viable, followed by Algerian sales to the U.S. Middle East LNG to the U.S. or Europe is not promising. Delays in obtaining FPC authorizations may hinder U.S. import projects.

Introduction

Many liquefied natural gas (LNG) ventures are under development, but their successful implementation is by no means assured. A number of ambitious schemes have been launched in the past and summarily abandoned later, other proposed projects have langushied for years. Deciding which of the current prospective ventures have the greatest chance prospective ventures have the greatest chance of becoming realities is the subject of this paper.

The information on which this study is based comes from the numerous reports on LNG which appear in petroleum industry periodicals, such as Platt's Oilgram News Service, the Foster Natural Gas Report, and Petroleum Intelligence Weekly. Articles from the financial pages of the daily press, especially the New York Times and the Wall Street Journal, were also used.

PRESENT STATUS OF LNG TRADES PRESENT STATUS OF LNG TRADES Through at least 1980, LNG will be a growth industry. Currently, worldwide trade amounts to 1.6 billion CF/D, but if projects under construction start up on schedule, this will increase to over 6 billion CF/D by decade's end. LNG is gaining prominence as an energy source in all three of the world's major consuming areas — Europe, Japan and the U.S.

Europe

In a few years, Europe's indigenous gas production will go into decline, and substantial production will go into decline, and substantial new supplies will have to be imported if the gas industry there is to meet the demands which have now been established. Pipeline imports from Russia and Iran (via an exchange agreement with the USSR) are planned, but Europe has also turned to North Africa for supplies of LNG.
Liquified Natural Gas Imports - Are They Worth the Risk?
Authors: D'Andrea L.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

The decline in readily available supplies of gas to interstate pipelines is expected to continue for the foreseeable future. Uncertainties and delays associated with natural gas legislation and other supplementary gas supplies, such as Alaskan gas and coal gasification require that the gas industry import liquefied natural gas (LNG) to satisfy gas requirements.

There are risks, however, associated with LNG imports which must be recognized and dealt with to lessen United States dependency on imported sources of energy.

The Energy Resources Council, recognizing the risks associated with LNG imports, has implemented a LNG import policy which set a national level of about 2.0 Trillion cubic feet (Tcf) of LNG by 1985, but more importantly, it limits imports from any one particular source to 0.8 Billion cubic feet (Bcf) to 1 Tcf per year.

Introduction

The Presidential energy message of February 26, 1976, expressed serious concern about the United States' growing dependence on imported sources of energy. It went on to state that: "We must reduce our vulnerability to the economic disruption which a few foreign countries can cause by cutting our energy supplies or by arbitrarily raising prices."

Turning to natural gas, the Presidential message recognized the impact of a continued gas shortage and the need to supplement declining domestic supplies with such supplementary sources as LNG imports. The prospects for increased levels of imports were real in light of several LNG projects authorized or planned for the future. The policy announced in February considered 1 Tcf as an acceptable level of LNG imports by 1985, subject to further analysis and review.

The Energy Resources Council (ERC), which is part of the Executive Office of the President, part of the Executive Office of the President, has responsibility for communicating and coordinating the activities of Federal agencies that have responsibility for developing and implementing energy policy or managing energy resources. The ERC was directed to implement a new policy for imported LNG, including review of each LNG project for national security and economic feasibility. The ERC was also directed to establish procedures for the review of such issues as pricing, government financial assistance, regional dependence, sources of supply, and reassessment of the 1 Tcf import level. The ERC set up a Task Force to conduct such further review. Based on the findings of the Task Force, the ERC recommended certain actions as a further step in implementing a LNG policy. policy.
The Long Term Prospects for Conventional U.S. Gas Supply
Authors: Zareski Gordon K.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Warnings of a natural gas shortage were sounded by qualified experts as long ago as 1948, but were largely ignored by policymakers. Since the peak in 1967, the lower 48 states proved reserve inventory of natural gas has proved reserve inventory of natural gas has shrunk by more than one-third and reserve additions during this period have been less than one-half the amount necessary to maintain a constant level of proved reserves. In recent years the domestic drilling effort has responded well to higher gas prices and other incentives, but the discovery results have been disappointing. These trends could be an indication that the size of the undiscovered natural gas resource base may be the most serious constraint on future conventional gas supply.

Domestic natural gas production peaked in 1973 and has declined each year since then. Based on recent trends of annual reserve additions, the staff of the FPC projects that lower-48-state conventional natural gas production will decline to approximately 14 Tcf production will decline to approximately 14 Tcf by 1985, a 38-percent drop from the 1973 peak of 22.5 Tcf. While further increases in price incentives might ameliorate the situation somewhat, industry and government policymakers should proceed on the expectation of decreasing gas availability.

The views expressed herein are the views of the author and do not necessarily reflect the views of the Federal Power Commission or of individual commissioners.

Introduction

There were two major energy events that took place in 1973. The contrast between these two events is interesting and says much about our national perception of serious energy problems. The first event, the OPEC oil problems. The first event, the OPEC oil embargo, followed by the new tough OPEC bargaining posture and skyrocketing world oil prices was given extensive press coverage, and prices was given extensive press coverage, and of course, the temporary gasoline shortage had a direct impact on the lives of most citizens. By contrast, the second major energy event in 1973 received little, if any, media coverage. This second event was the peaking of U.S. natural gas production and the beginning of its decline for the first time in the history of the modern gas industry.
Effect of Natural Gas Price Controls on Domestic Natural Gas Supply: Past, Present and Future
Authors: Campbell J.M. , Campbell Robert Allan
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

The price of natural gas at the wellhead affects the profitability and eventually the ability of producers to supply natural gas at a rate which is at least equal to its depletion from consumption. The fundamental problem in natural gas economics is setting gas problem in natural gas economics is setting gas prices which stimulate new gas reserves, prices which stimulate new gas reserves, while maintaining a minimum contribution to inflation and other consumer costs.

In this paper two statistical models are used to evaluate the effect of several gas pricing formulas on past reserve additions and pricing formulas on past reserve additions and future reserve additions. Included in the pricing formulas considered are the FPC pricing formulas considered are the FPC proposed price increase in gas price to $1.42 per proposed price increase in gas price to $1.42 per MCF, tieing gas prices to inflation rates, and setting gas prices equal to the price of oil on a BTU basis.

Results of this study indicate that FPC pricing formulas between 1961 and 1975 pricing formulas between 1961 and 1975 reduced new reserve additions over 50 percent over what they would have been without regulation. Future pricing would never have been necessary if gas formulas, even with an increase in the new wellhead price of gas to around $1.42, will not overcome current deficiencies in gas reserves, and may even retard new additions to reserves if old pricing formulas are reinstated.

Introduction

Beginning with wellhead price controls imposed on the gas industry in the early sixties, controversy has surrounded the pricing formula for setting wellhead gas prices. Consumer groups argue that the price is too high, regardless of what gas prices may be. Industry on the other hand has suffered a form of "regulatory lag," where actual wellhead prices lag behind the cost of finding and producing gas. With insufficient incentives new additions to reserves have been less than they would had prices been set in a manner consistent with prices been set in a manner consistent with gas industry economics.

In this paper we are concerned with evaluating the effect of past pricing formulas on reserve additions, and, more importantly, estimating gains in new reserves between now and 1980 from instituting practicing more practical pricing formulas. pricing formulas.
Forecasting Energy Futures: Facility or Futility?
Authors: Schanz John J.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Introduction

Perhaps my early exposure to forecasting as an Air Force meteorologist was habit forming, but for one reason-or another I have been involved in long-term mineral forecasting almost continuously for nearly thirty years. During that time I have progressed from a master's thesis on forecasting future mineral demand, to a post-doctoral study at Penn State on future energy sources for Pennsylvania, to seven years in Denver as Director of the Future Gas Requirements Agency, to my last three years with Resources for the Future. I should check my high school yearbook and see if it listed me as a young man with a future.

I would like to spend a little time reflecting upon a few interesting characteristics I have noticed in the various types of projections of future supply and demand, both for energy as well as for the individual fuels. Following that, I will examine the current type of energy "outlook" and discuss why it is no longer popular to produce traditional "forecasts." You will note in the process that, along with my colleagues among the energy economists, I too will avoid making forecasts.

TYPES OF ENERGY FORECASTS

The Next-Year Forecast

Although I do not want to devote much attention to extremely short-range energy forecasts, I should at least mention how they fit into the forecasting scheme. In this classification we find the trade press or industry association forecasts which link the production and consumption of energy or the individual fuels to the business outlook for the next year. These may be simple composites of expert opinion or they are the product of fairly complex analyses where expected changes in energy prices and supply are applied to many-sectored input-output models of the economy to determine what effect energy will have on demand, employment, GNP, or other parts of the economy. Or, in the reverse, they start with certain assumptions as to next year's GNP, the industrial production index, number of cars to be manufactured, and other variables, to determine what energy products will be required month-by-month. products will be required month-by-month. These are interesting exercises for use by the energy executive, the financial community, or government officials. However, as we have found, our short-term business forecasting has its share of problems and frequently misses the mark.
Recent Developments in FPC Regulation of Natural Gas Prices
Authors: Attwell J. Evans , Schenkkan P.M.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Until and unless Congress passes deregulation legislation, interstate gas ceiling prices will be set by the Federal Power prices will be set by the Federal Power Commission. In 1976, the FPC issued orders setting out a complex new nationwide rate structure an made decisions affecting the use of various procedures for making interstate sales at prices procedures for making interstate sales at prices above the nationwide rates. These order decisions are reviewed. The current gas crisis demonstrates the continuing failure of cost-based regulation by the FPC and underscores the importance of deregulation to minimize future shortages.

Introduction

As this paper goes to the printer's, our nation is experiencing its worst natural gas crisis ever. Prolonged cold weather, including the coldest average temperatures ever recorded for many parts of the Southeast, have increased demands on interstate pipelines supplying most of the country. Because of limited supplies, a number of such pipelines are unable to meet the needs of their highest priority customers. Schools and factories have closed. President Carter estimates that 200,000 workers have been laid off. Supplies to residences and small commercial users have been severely restricted. Many governors have declared states of emergency.

The winter will end, but the crisis will not. It has been growing for years. In fact, for several years, only unusually warm winters have contained the crisis at manageable levels. Gradual recognition of the crisis has focused more and more political attention on the question of natural gas price regulation. In 1976, this attention reached such levels that the year began and ended with hopes for Congressional deregulation. It will be interesting to see what impact the winter of 1977 will have on deregulation legislation in the new session.

In the meantime, the Federal Power Commission is stuck with the job of regulating interstate natural gas prices. 1976 was a "vintage" year for Commission regulation, highlighted by the adoption of new nationwide rate ceilings to govern interstate producer sales.
Oil Company Divestiture
Authors: Slick W.T.
Published: December 2007

Introduction

The development problems that face those of us in the energy industry are formidable. While as engineers we are accustomed to approaching such tasks in tangible, physical and economic terms, the significance of these traditional concepts is becoming increasingly dependent on a growing number of imponderables. This is particularly true in the area of government policy, which has injected many uncertainties into our business. These political intangibles are frustrating and difficult to grapple with, but must be taken fully into account, for they can drastically affect cost assumptions and, more fundamentally, our ability to do the job. Of the numerous legislative issues facing the energy industry, none is more potentially serious than Congressional efforts to break up the oil companies and to prohibit their diversification into other fuels. This question will be answered in some detail later, but, before doing so, it is appropriate to briefly review other key governmental issues that could also significantly affect the progress of U.S. energy development.

II. GOVERNMENTAL ISSUES

Oil and Gas Controls

Particularly pressing is the question of oil and gas price controls and allocation regulations.
Current Developments in Oil and Gas Taxation, Including Current Partnership Developments
Authors: Burke Frank M.
Published: December 2007

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

Introduction

The past 2 years have seen significant legislative, administrative, and judicial developments that have had significant direct and indirect impact on the taxation of the oil and gas industry. It is the purpose of this outline to review such developments in the following order.The Tax Reform Act of 1976The Tax Reduction Act of 1975Current Developments in Oil and Gas Farm-Out ArrangementsRevenue Agent Guide - Guidelines for Examination of Drilling FundsThe Limited Partnership - Pre- and Post-Larson and Zuckman Post-Larson and ZuckmanRecent Administrative Rulings and Judicial Decisions - Other than Larson and Zuckman

THE TAX REFORM ACT OF 1976 (TRA)

TRA contains a number of significant changes specifically affecting the oil and gas industry. As indicated below, the changes raise serious questions as to whether oil and gas exploration and development activities should (or, in fact, can economically) be carried on in noncorporate form.

The law may represent the culmination of an effort on the part of certain government officials to cause oil and gas activities to be carried on in corporate form. For the past 32-years, the solution to substantially all punitive tax reform proposals aimed at oil and punitive tax reform proposals aimed at oil and gas operations has been to incorporate. This attitude, to some degree, now has been formalized in the law.

Perhaps the most far-reaching change affecting corporate and noncorporate taxpayers engaged in the oil and gas business is the new requirement (reflected in new Section 1254 of the Internal Revenue Code of 1954*) that, upon disposition of oil and gas properties (domestic or foreign) after Dec. 31, 1975, taxpayers will be required to recapture all or some part of the intangible drilling and development costs (IDC) paid or incurred after Dec. 31, 1975, as paid or incurred after Dec. 31, 1975, as ordinary income to the extent that the property is disposed of at a gain (or is deemed to have been disposed of at a gain).
The Reliability Of Econometric Models
Authors: Merklein H.A.
Published: December 2007

Society of Petroleum Engineers 6200 North Central Expressway Dallas, Texas 75206

THIS PAPER IS SUBJECT TO CORRECTION

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.

There is no question that the increase in crude-oil prices, as viewed by oil importers, is a cost-push phenomenon: it involves the displacement of the importing nation's aggregate supply curve. Whatever the economic impact of increased crude oil prices in importing nations, the use of demand management policies cannot successfully counteract what is in effect a supply problem.

Yet, based on the results of a study involving an econometric model, U. S. government officials maintain thatthe price/employment impact of the 1973/74 increase in crude oil prices was very substantial and long-lasting (at least until 1980), anddemand management policies can be used to soften that impact on both the price-level and unemployment fronts.

No matter how complicated the mathematics of the argument, the results of this econometric study are inconsistent with observed market behavior and with economic theory. This suggests, of course, that the econometric model itself is wrong. It is the purpose of this paper to implant an awareness in the paper to implant an awareness in the reader's mind concerning the limitations of econometric models.

Introduction

One would think that the question of the inflationary impact of rising crude oil prices has now been put to rest, since most economists who have seriously looked into the problem have come up with essentially the same answer—a rare phenomenon for this breed of people who phenomenon for this breed of people who (according to Bernard Shaw), if laid end to end, will reach no conclusion. It is generally agreed that the inflationary impact of rising crude-oil prices, assuming no changes in the money supply, has been a one-time increase in the U. S. GNP deflator on the order of two to three percent. This has been discussed repeatedly percent. This has been discussed repeatedly by this author. Nobel-Prize Winner Milton Friedman has been quoted as saying that "inflations are made at home by governments, and governments found it convenient to blame the oil crisis for their troubles." Harvard 's Professor Haberler has expressed similar thoughts, as have the OECD and countless others.