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While a cult of Peak Oil adherents fret about the end of the hydrocarbon age, we’ve been focusing on trends that will provide buffering to the upcoming declines in oil production. Don’t get me wrong, I’m not saying that Peak Oil won’t happen, however the dreaded peak may turn into a downward sloping plateau supported by higher prices. This high price plateau should buy the planet enough time to start thinking about conservation and using alternate energy sources.
One little known fact about the oil business is that the majority of the oil discovered to date will never be produced. Engineers use the term “recovery factor” to describe what percentage of the “original oil in place” or OOIP will be produced. In the United States it is estimated that 66% of the oil discovered to date or the OOIP is left in the ground.
State oil companies control approximately 80% of the world’s oil reserves. The vast majority of these countries are not friendly towards the United States.
The discovery of giant oilfields today is hampered by the fact that giant oilfields are the ones that are discovered first in an exploration cycle. The longer we look for them the less likely we are to find them. Giant fields are usually discovered first.
Matthew Simmons has pointed out that as much as 70% of our daily oil supply comes from oilfields that were discovered prior to 1970.
Of course new technology can increase the size of the discovery universe by allowing drilling in increasingly hostile conditions. For example, 75% of Brazil's oil reserves are under at least 400m of water. Without deep water drilling technology this oil would never be produced. Brazil’s recently announced Tupi discovery is a good example. It occurs in ~2100m of water. Petrobras (PBR), controlled by the Brazilian government, owns 65% of this ~8 billion barrel field.
A confluence of factors are pointing to a developing boom in enhanced oil recovery (EOR) projects. Increased oil recovery is going to require the implementation of EOR technology on an epic scale. Investors should take note.
Graph illustrating a dramatic increase in EOR production (the green wedge) as conventional production declines. Figure from IEC EUROPETROL PLC.
There is no doubt that a new generation of oilfield hackers will be getting much more oil out of mature oil fields.
According to Schlumberger’s Oilfield Glossary, the three major types of enhanced oil recovery operations are:
- chemical flooding (alkaline flooding or micellar-polymer flooding).
- miscible displacement (carbon dioxide [CO2] injection or hydrocarbon injection).
- thermal recovery (steamflood or in-situ combustion)
We have found public companies active in all 3 categories and will be profiling them over the coming weeks.