TNK BP: Unconventional Sources of Hydrocarbons: Shale Bubble or Shale Revolution?

For the last several years, the topic of unconventional hydrocarbon resources development has become increasingly popular across the globe. It is also a controversial topic, with opinions ranging from euphoric announcements of a “shale revolution” to highly sceptical expert reviews characterizing that phenomenon as a “shale bubble”. If a company wants to avoid falling victim to a potential breakthrough turning into a bubble, it needs to be prepared and arm itself, above all, with technology.

Unconventional resources are hydrocarbon resources that cannot be extracted using conventional means, that is, drilling conventional wells and stimulating the target formation using conventional techniques. That has to do with permeability of the reservoir rock which has a direct influence on production well flow rates. In conventional fields, oil companies normally deal with producing formation permeabilities in excess of 1 mD. At a permeability of 1 mD, well flow rates can range from 5 to 50 cu. m per day depending on the formation thickness and selection of lift type. Permeability of unconventional reservoirs can be 100-1000 times lower, and consequently, the initial flow rate of a “standard” well will be lower by the same order of magnitude.

Theory of Origin
According to the organic theory of the origin of hydrocarbons, oil and gas are generated from organic matter preserved in sedimentary rocks and subjected to a certain temperature and pressure (maturity) in the process of geologic development. Most of the organic matter is contained in shaly rocks (shales) which were deposited in deep marine environments where low oxygen levels ensured preservation of the organic matter. Those rocks are also called source rocks. Having reached a certain maturity level, the organic matter starts transforming into hydrocarbons, initially into oil, and later, into gas condensate, and eventually, into gas. The volume of newly generated hydrocarbons is larger than the volume of the source organic matter. That creates excessive pressure which causes the shale to develop micro-fissures and allows the hydrocarbons to seep beyond the source rock.

If the shales are deposited next to good permeability rocks (reservoirs), the hydrocarbons start filling them up moving toward the earth surface, and if they encounter traps with caprock on the way, they form conventional hydrocarbon fields. However, if the adjacent reservoir rock has very low permeability, the hydrocarbons that fill it up cannot migrate over a long distance. As a result, even with no traps in place, hydrocarbon deposits are accumulated in tight reservoirs. In western terminology, those deposits are called tight oil and tight gas deposits. In that process, a considerable portion of the generated hydrocarbons remains in the micro pores and micro fractures of the source rocks which have quite good total porosity (10-30 percent). In cases where the source rock has no contact with the reservoir rock and is constrained by impermeable rocks, the generated hydrocarbons form zones of abnormally high formation pressure which creates additional fracture space volume, and therefore, the volume of hydrocarbons in a source rock can exceed the initial total pore volume. In western terms, such accumulations formed in source rock are called shale oil and shale gas deposits (Fig. 1).

In order to get an idea about the volume of unconventional hydrocarbon resources potentially contained in tight reservoirs and organic matter-rich shaly rocks, the volume of generated hydrocarbons may be compared with the volume of conventional resources in well-studied petroleum basins. Normally, only 1-3 percent of the total volume of generated hydrocarbons finds its way into conventional fields. The rest migrates to the surface, gets dispersed along the migration channels or is concentrated in source rocks and tight reservoirs. The share of generated hydrocarbons that is withheld in tight reservoirs depends on specific geologic conditions of each individual basin and can vary over a wide range, but it tends to remain small and usually does not exceed a singledigit figure. As for the source rocks, which are mainly made up of high porosity clays (10-30 percent), their pore space is full of hydrocarbons, i.e. they contain 10-30 percent of the total volume of hydrocarbons generated, which is almost an order of magnitude more than the aggregate volume of hydrocarbons in all conventional fields added together. Thus, there may be significant volumes of unconventional hydrocarbon resources in the subsurface, potentially larger than conventional resources by an order of magnitude.

Producibility
While most experts have no doubt that there are large volumes of unconventional resources in the subsurface, their producibility is what gives rise to misgivings. It is true that the idea of producing from clays, which have large total porosity but almost zero effective porosity and permeability, runs somewhat counter to the seepage theory. The presence of abnormally high formation pressures, and the fracture porosity they cause, can produce some minor inflows into a vertical well but they will soon decline as the formation pressure drops and the fractures start to close.

Over many years, there have been numerous attempts in the United States to come up with a solution to the task of producing unconventional resources from shaly source rocks. Targeted efforts during the 1990s and 2000s gave rise to a cost-effective technology. The idea behind it is to create an artificial reservoir which would allow for draining a large zone in shaly rock by means of drilling a well with a 1-3 km long horizontal section and performing multi-stage (10-30) hydraulic fracturing jobs in the wellbore. In order for the fractures to propagate perpendicularly to the well’s horizontal section axis, its direction shall be designed to be perpendicular to the axis of maximum stress in the rock to be drilled. The hydraulic fracturing technology in this case will be different from the conventional approach because the objective here is to not only create the main fracture of a certain length and height but also to destroy the integrity of the shaly rock as much as possible and create an additional network of small fractures. That objective is achieved by pumping large volumes of frac fluid which can be as large as 500-1000 cu. m per frac stage, i.e. by an order of magnitude more than during a conventional frac. As a result of the main frac and the pumping the large volumes of fluid, a network of inter-connected channels is created which is made of main fractures filled with proppant and accompanied by small fractures fishboning from the main ones. That network helps drain a considerable zone of the formation, thereby generating acceptable initial flow rates and cumulative production per well levels (Fig. 2).

That technology has laid the groundwork for a dramatic rise in the scope of drilling unconventional hydrocarbon deposits and has resulted in an upturn in the production of shale oil and shale gas in the USA. For instance, shale gas production grew from 25 bcm in 2005 to 140 bcm in 2010 and is expected to reach 200 bcm in 2012. Volumes of shale oil production are also impressive: with only 5 mln t produced in 2005, its 2012 production is anticipated to be 50 mln t. Thus, for the last seven years, production of hydrocarbons from unconventional sources in the US has grown approximately by a factor of ten, and that does deserve to be called a revolution.

Success in Production
The success in production of unconventional resources has become a springboard for dramatically ramping up estimates of recoverable reserves. As compared with the 2005 levels, shale gas recoverable reserves estimates for well-studied basins in the USA have been increased by a factor of eight to reach 13.5 tcm, while similar estimates of oil reserves have grown by a factor of ten to reach 4.5 bln t. It should be noted that these estimates are quite conservative because they are underpinned by cumulative production from pilot areas and do not account for the possibility of infill drilling and further development of unconventional hydrocarbon extraction technology. But even with that conservative approach to resource estimation and the resultant production level predictions, the USA is expected by 2020 to have the potential to utilize its unconventional hydrocarbon resources to start exporting its natural gas and considerably reduce its crude oil imports from 450 to 350 mln t a year.

Development Potential in Other Countries
The advancement in unconventional development of resources in the USA should not promote the misperception that other countries do not have that potential. They have not demonstrated comparable achievements so far due to the limited scope of targeted studies in the area of hydrocarbon accumulations in tight reservoirs and source rocks. All petroleum basins of the world can potentially contain unconventional hydrocarbon deposits, whereas their producibility is contingent upon the geology of each individual basin.

The priority candidates for studies in that area are the formations in which, multiple shows of hydrocarbon presence were observed in low permeability (tight) reservoirs and source rocks during studies of conventional petroleum accumulations, or even other minerals. An example of hydrocarbon accumulations in tight reservoirs can be Middle Carboniferous deposits in the western part of the Donetsk coal basin in Ukraine. During coal fields exploration in that area, hundreds of illustrations of gas saturation in low porosity sandstones were observed, including high gas content discovered during drilling and even gas inflows into some of the coal exploration wells. The presence of such accumulations is associated with the history of geological development of the Donetsk coal basin: it underwent a considerable uplift, and therefore, the sandstones which were packed at large depth and filled with gas from transformation of organic matter are now located at depths accessible to shallow coal exploration wells. To date, the production potential data maturity for that formation have been poorly studied, and in order to improve the outlook, exploration activities and recovery technology selection studies will need to be undertaken. At the same time, that territory displays considerable potential, with the surface area of the prospect exceeding several thousand square kilometers.

One interesting illustration of hydrocarbon accumulations in source rock is the largely shaly Bazhenov sedimentation in West Siberia, where numerous cases of oil and gas shows were observed during drilling operations. The Bazhenov suite contains a lot of organic matter and the degree of its maturity is favorable for hydrocarbon generation. In the TNK-BP license areas, the most visible oil shows from the Bazhenov suite came to light during exploration of the Kamennaya ресурсов. area of the Krasnoleninskoye field developed by TNK-Nyagan. The Bazhenov sediments here are squeezed between an impermeable basement and a thick overlying impermeable clay bed, which made migration of hydrocarbons beyond the source rock difficult. It was probably the abnormally high formation pressure, developed as a result of the complicated migration and the formation of secondary fractures that made it possible to obtain oil inflows from conventional vertical wells even without hydraulic fracturing during testing of the Bazhenov suite. There are at least two wells – #550Р and #4001Р which produced oil from the Bazhenov suite for over a year, and the cumulative oil production from those wells totaled 8,000 t to and 3,000 t, respectively (Fig. 3). Given that the area of the Bazhenov suite surface area in West Siberia amounts to a few hundred thousand square kilometers, the presence of gargantuan shale oil and gas potential may reasonably assumed.

Thus, the effective technology developed in the USA for the recovery of unconventional hydrocarbon resources has led to a significant increase in the number of potential exploration targets in the majority of the world’s petroleum basins. But only the companies that possess the technology for rolling out unconventional resources will be able to reap all the rewards available by launching new-tech projects.

Expansion of International Business via New Technology
In recent years, there has been a global trend in the reduction of the number of conventional hydrocarbon exploration targets alongside fierce competition for prospects with low geological risks. The unconventional targets, on the other hand, have a significant resource potential but extremely high technical risks associated with their development, and therefore, the competition for unconventional resources in the near future will be lower for objective reasons, while the companies possessing proven proprietary technologies for the development of those resources will have a significant competitive advantage.

Needless to say, in order to stay competitive in the international unconventional resource market, companies need state-of-the-art technologies. Those technologies, however, are not easily accessible and a company would need to take persistent and targeted efforts to develop them. For this reason, if unconventional hydrocarbon development is included in the list of the Company’s strategic interests, it will be required to engage financial and human resources to develop and test new technologies in the most promising areas. Areas for pilot operations can be found within the existing licenses, which would make it possible to launch those projects considerably earlier. It should be noted here that the existing Russian tax regime does not currently allow for an acceptable level of cost-effectiveness of such projects. Therefore, the main benefit from that work will be the development of proprietary technologies and the ability to outpace competitors in the international marketplace in the areas where tax regimes provide tax benefits for companies involved in the development of unconventional resources.

Published with thanks to TNK-BP and Innovator Magazine