Executive Insider

A fine balance: Recovery rates vs. input costs

Kim Davies on the pros, cons and costs of enhanced oil recovery

September 16, 2011

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Most of the world’s current oil production comes from mature pools. The fact is, new discoveries have not been replacing the produced reserves for many years in most countries. Another avenue for uncovering “new” reserves is enhanced oil recovery (EOR); the use of different advanced technologies to get more oil out of existing pools. An SBI study in 2010 reported that the global market for EOR was $3.1 billion in 2005 and is projected to be $1.3 trillion by 2015, a tremendous escalation in value.

EOR makes sense in Canada if it is economically comparable to other types of oil developments.  In Western Canada, based on the Energy Resources Conservation Board’s numbers, there are nearly 100 billion barrels of non-oil sands oil originally in place. Only about 25 billion of these barrels are going to be produced under traditional extraction methods. The use of EOR could coax significantly more of the remaining 75 billion barrels out of the ground.

There are many positives in the use of EOR. For example, it’s not exploration as the amount of remaining oil is usually well defined, the technologies are proven and improving, existing infrastructure use provides significant cost savings and reduced environmental footprint, decline rates are typically low, oil prices are robust and favorable EOR royalty structures exist. There can be some negatives in the use of EOR though. Relatively long lead times to initiate projects are always a threat, there can be significant upfront capital requirements, a lack of local technical talent and difficulties in sourcing suitable carbon dioxide (CO2) volumes, if that is the EOR method to be employed.

EOR can be very cost competitive when compared to other non-conventional extraction methods, however. The International Energy Agency (IEA) estimates that the production cost for EOR is between US$25 and US$80 a barrel. Similarly the production cost estimates are US$40 to US$90 a barrel for oil sands or extra heavy oil (thermal).

There are a number of cost factors to be considered depending on the EOR method being considered. (I will not consider thermal methods here, except to briefly discuss air injection.) Natural gas EOR, with the current low pricing, may work well in situations where methane or acid gas can be used. Other gases include CO2, nitrogen and even high pressure air. With CO2, proximity to a source of sufficient quality and quantity plus price is the key. Constructing a long pipeline to transport the CO2 can be cost prohibitive. Unfortunately Canada has few sources of CO2 in the right places. Nitrogen and oxygen can be produced in situ but require large compressors to inject the gases into the reservoir, which may be justified with the right reservoir. Air injection has additional issues associated with controlling the process but has had great success when appropriately applied. Chemical EOR is usually an upgrade to an existing water flood and costs are dependent upon availability of suitable water and the types of chemicals employed.

Analyses done by Surtek Inc. and others on chemical EOR have shown rates of return ranging from seven to 75 per cent, depending on the type of chemical and the quantity used. Chemical costs alone in various projects have ranged from about US$2 to nearly US$40 per incremental barrel of recovery. Facility costs would typically be another US$4 to US$8 per barrel. With the right chemical mix, any reservoir could have nearly 100 per cent of its oil recovered, but it certainly wouldn’t be economic. The challenge is to balance the amount of additional oil recovered with the chemical costs for optimal profit.

Terrex Energy is initially working on chemical floods with its first two pools but plans to expand into other EOR technologies as it grows its inventory. Our approach is to be opportunistic in developing the best projects we can acquire with the appropriate methods to optimize oil recovery.

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Kim Davies is the president and CEO of Terrex Energy Inc., a Calgary-based junior oil company. She blogs regularly for Alberta Oil, providing insight on the world of oil and gas entrepreneurship.

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