Heavy Oil-"Riding the Wave"

Abstract

This month we will be presenting our fifth year of the one day "Slugging it Out" conference series. Co-sponsored by the Heavy Oil Special Interest Group and the Canadian Heavy Oil Association, this successful series gathers individuals interested in all areas of heavy oil development for an informal and informative brainstorming ession. our theme this year is "Riding the Wave," which we feel is very appropriate given the resurgence in heavy oil activity, primarily due to heavy oil wellhead prices in the $20/bbl range. The conference will be held at the Metropolitan Centre on April 10 and registration information is available by contacting The Petroleum Society office. Now that I've dispensed with the commercial, let's consider the last 12 years of our heavy oil industry. I believe this is my second major price cycle in the heavy oil business. As a production engineer in Lloyminster in 1985, it appeared that all that was required to make money was to get oil out of the ground, by whatever means possible. Wellhead prices for heavy oil were in the $30/bbl range, and economic analysis would support drilling a 20 bopd well. Price forecasts were of the "hockey stick" variety, and the majors were amassing infrastructure to be ready when prices hit $50/bbl. Thermal projects (primarily Cyclic Steam Stimulation) were in full operation predicting 30% recovery of the original oil in place. A conventional vertical primary well was drilled on 40 acre spacing and the rule of thumb recovery factor was 5%. Sand production was a necessary evil that contributed to higher operating costs and could sometimes be mitigated by reducinghe drawdown on your well. Progressive (or as they are more correctly called now Progressing) Cavity Pumps had appeared on the scene, but were generally not accepted as a means of producing heavy oil. The decision by OPEC in early 1986 to recapture market share lost over the years was a dramatic "wake-up" call to our industry. By mid to late 1986, a barrel of heavy oil in Lloydminster was selling for less than $10 and companies were scrambling to minimize the losses. The first to go were the thermal projects as operating costs were typically in excess of $10/bbl. Next, the marginal primary producing wells were shut-in. The human toll was most obvious as the vacancy rate at my apartment complex went from 0.1 % to 30% in a matter of eight months. Throughouthis process, I realized that I had very little understanding of the factors that influenced the pricing of heavy oil, and perhaps it was time to remedy that situation. Pricing for heavy crude is based on a differential to a light sweet crude (usually the Edmonton par price for a 40 API crude) which encompasses differences in quality (density and sulfur content) and the amount of condensate (C5+) required to make up a heavy oil blend suitable for pipelining. A Lloydminster type blend is typically in the order of 22 API and will contain anywhere from 20 – 25% condensate.