Marginal Fields Development: Strategic importance, Techno-economical challenge A case study from Western Offshore, India

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1 Marginal Fields Development: Strategic importance, Techno-economical challenge A case study from Western Offshore, India Keywords: Marginal, technology, offshore, reserves, ballpark, development, basin Summary: Marginal fields are those fields which may not be techno-economically viable and worth developing at a given point of time due to one or more factors such as small size of reserves, lack of consumers/infrastructure in the vicinity, prohibitive development costs, prevailing fiscal regime and technological constraints. Within the context of natural declining in oil rate from the matured fields and simultaneous increasing oil demand, these marginal fields are of major strategic importance. Their development would enable numerous countries to maintain the impact of the petroleum industry on that economy in terms of energy security & independence, trade balance and hence reducing the oil pool deficit. Development of marginal fields in recent time is gaining popularity in view of higher crude oil prices and declining production from brown fields. Crude oil production in India is mainly contributed (about 42%) by Western Offshore Assets and is undergoing steady decline as its fields are matured & decades old. The indigenous crude oil output was falling continuously over the last seven years.to support and sustain the production, the marginal fields which have been discovered and remained undeveloped for economical reasons are being taken up for development through innovative strategies and cost optimization. In the current fiscal (FY: ), the western offshore oil production has gone up by 4.3% to16.18 million tons, rising from million tons in FY: The increase in production is primarily because of small and marginal fields in the area are put into production. Currently, there are about 73 marginal fields in the Western Offshore region, Mumbai, totaling around 7200 million bbl. oil equivalent 3-P in-place reserves & out of which about 1830 million bbl. oil equivalent is recoverable and about 350 million bbl. is already recovered till June Most of the marginal fields are far away from the existing infrastructures & are located at bathymetry ranges from 30-95m and in many cases contain insufficient reserves to be considered for development on a standalone basis. Under the present scenario, these marginal fields can only be exploited through the use of improved infrastructure and advanced technologies like 3-D seismic data API, Sub-sea well completion, improved stimulation technology, multiphase production, minimum facility well platform, Multi Phase Pumps, deployment of Floating Production Storage & Offloading (FPSO) ship & Mobile Offshore Production Unit (MOPU) for well fluid evacuation, host of other new ideas like Cluster Development Concept wherein an area is developed as one project and not just individual fields and utilization of various lift technologies will make these marginal discoveries economically viable. In many occasions techno-economics becomes hindrance to the development of marginal fields in view of isolated, low volume of 2-P reserves & requires up-gradation of lower category in-place HC volume and non availability of nearby infrastructure facilities. This paper is basically dealt with the development perspectives of marginal fields which can be brought to the main stream of production in order to compensate the production decline from matured fields and to overcome the growing demand of petroleum products. Introduction: The marginal field is the one that is on the border line between economic to develop and not being economic to develop. It is the cost of development and the fiscal framework that establishes the limits of acceptable economic production. The cost of development and design/ application of production systems in turn are controlled by other variables like size of discovery in terms of producible volumes, logistics/ nearness of facilities etc. Constraining the uncertainty levels on each variable, such cases also becomes major hurdle in

2 development of marginal fields. Thus the understanding of a field as marginal varies from province to province and is broadly based upon cost of development and the fiscal framework. Most of the big offshore basins world over, such as the North Sea, the Gulf of Mexico or the Mumbai Offshore Basin in India is entering into their mature age. This maturity results in both favorable and unfavorable aspects. The favorable aspects are (i) better understanding of the reservoir characteristics & reservoirs performances of such basins (ii) availability of considerable infrastructures which represents a valuable tool of development. This infrastructure is not only made of tangible assets such as platforms, pipelines and terminals etc., but also intangible ones of equal importance an industry of thousands of skilled people which has built and maintained the tangible part of this infrastructure. The unfavorable aspects are (i) the big fields, the Whales, which were the economic justification of the huge upfront investments, are on the decline (ii) The new discoveries are made of hundreds of small dispersed accumulations, many of which, under the prevailing techno-economical conditions&existing fiscal policy, are economically too risky to be developed - called Marginal fields. However monetization of those marginal fields is of utmost importance (i) for the upstream oil companies whose oil production are on the stage of declining (ii) for the producing countries which are import dependent involving of significant foreign exchange and (iii) for the benefit of whole community of consumers. In most cases this fact is very true for the national upstream oil companies in India. The marginal reserves represent altogether a considerable amount of oil & gas, compared to the already developed reserves, making real this potential wealth is of strategic importance and represents a major techno-economical challenge. Marginal Fields in Western Offshore: A total of 103 offshore hydrocarbon discoveries have been made so far in Western offshore waters. The ballpark cost analysis shows that accumulation are considered as marginal (i) if they contain less than 25 million barrels of oil equivalent and (ii) if they are located at more than 8 km from an existing infrastructure. The reasoning that leads to such figures is related to the Capital Expenditure (CAPEX) required to develop the field on a standalone or nearby available infrastructures basis. Nearly 73 hydrocarbon accumulations have been selected as marginal fields. Out of these, 26 already put on production, 13 development schemes are prepared & under implementation, for 28 fields planned for monetization & development schemes are under preparation and remaining 6 fields are on the appraisal / delineation stage for up-gradation of 2-P volumes (Figure-1). In Western Offshore the main parameters are the amount of 2-P in-place volume, the distance between the marginal field under consideration to the nearby available infrastructure facility and oil & gas price etc. Recent studies have shown that if the CAPEX is higher than US $ 11/ bbl, the development is uneconomic.the CAPEX is indirectly related to reserves;and less CAPEX is required for tie-back developments. But a tie-back which uses the natural reservoir pressure to evacuate the well fluids to an existing facility is limited in distance. Most of these tie-back developments are located are less than 10 km from the main process platform. The normal bathymetry range varies from 25m to 90m with gentle dipping towards the west. The marginal fields are unevenly distributed throughout the Mumbai offshore basin, some are surrounding the main producing fields but majorities are isolated in nature. The distances of marginal fields from the existing platforms are ranges from a minimum of 5 km to a maximum of 40 km. Strategic importance of Marginal Fields: The global demand for oil is continuously increasing especially after the growth trend of some of the emerging economies of the world such as China and India that started appearing towards late 1990s. The production capacity on the other hand is facing the reverse trend. India, in particular accounted for 3.5% of world primary energy consumption and 12% that of total primary energy consumed in Asia-Pacific region in India is the world s sixth largest energy consumer and indeed a net energy importer. Nearly 25% of India s energy needs are met by oil, and around 75% of that oil is being imported. Natural gas has experienced the fastest rate of increase of any fuel in India s primary energy supply. Presently, the natural gas contribution is met nearly by domestic production. However, the gap between demand and supplies is set to widen unless major oil & gas discoveries are made (Figure-2). For India to tackle the economic and environmental challenges of its energy demand growth it is important to have a good understanding of how these and other factors shape energy use in various sectors of the economy India's annual oil products demand is forecast to grow 3.3 percent in the fiscal year

3 The country is expected to consume million bbl. of refined fuels in versus an estimated million bbl. this fiscal year, according to a forecast by India's energy data body, the Petroleum Planning and Analysis Cell (PPAC). India will become the largest single source of global oil demand growth after 2020, the International Energy Agency said.india's energy demand will double by 2035 on back of economic growth and rise in population and the oil consumption will exceed 8 million bbl. per day by 2035, which is more than current consumption of Japan, Korea and Australia put together. The development of marginal fields plays an important role on Indian energy scenario (Figure-3). The most important fact is to take maximum advantage of identified and proven reserves. If the already discovered marginal fields can be brought into the commercial range, it would give commercial access of oil and the unavoidable production decline would be delayed (Table-1). Through this scenario all players in the oil and gas business and governments would be winners. Techno-economical Challenges for development: Developing the marginal fields is a technological vis-à-vis economical challenge in many respects. The real challenge is probably not in selecting the most suitable technologies but the cost implications in the way these technologies will be managed. It is less the power of the weapons which would lead to victory than the art of using them through economic friendly means. In the case of marginal field development, technology has probably a much wider sense than usual. It covers all material, structural and even financial means which are to be mobilised to reach the objective. It cannot be restricted to pure technical matters, such as drilling, well completion or surface facilities, but has to be extended to all the needed professional skills, from risk evaluation to production monitoring including reservoir management and financial engineering.the two main challenges are in developing marginal fields - i) the uncertainty of data and ii) time. Dealing with uncertainty of data- Uncertainty of data is not only specific to marginal field s development alone but in general to the oil field development business. However it is more crucial for marginal fields because, for these fields, it is impossible to conduct heavy data acquisition programs due to the unbearable cost of such programs. The marginal fields will be developed with a limited amount of information and therefore in such a way that if the worst happens the project can still be profitable or at least break even. As mentioned, most of the conventional tools used to reduce the uncertainty before designing the development i.e., appraisal drilling, long duration tests are not applicable to marginal fields. The decision of a development and the guide lines of the development scheme will be made with generally one or two discovery wells and 3-D seismic interpretation results. Making such a decision is greatly eased by the fact that the geological formations are generally well known, and there are many examples of this kind of field in a given basin. Reasoning by analogy is therefore essential. But it is also essential, from a management standpoint that the decision makers realize that if they want to reduce these uncertainties to what they are used to in conventional developments the cost of acquiring the necessary data will be such that the project will never be economical. It means that we have to cope with uncertain data if we want to develop marginal fields. Fighting against time- Time is a pernicious enemy. Each year of delay in getting the oil to the surface reduces the true economical value of the reserves by the effect of actualization. For large fields this is not critical because the cost of finding is small compared to the development cost and to the resulting cash flow. Also because the required capital can be progressively mobilised, thus reducing by actualization the real cost of this capital. For marginal field development, most capital expenditures are up-front, before any production. The field cannot therefore supply the necessary cash-flow for its development. The analysis of development status of marginal fields in Mumbai offshore basin, indicate that some marginal reserves have been stockpiled for years awaiting development. The true economic value of these reserves which have been waiting for years either for the technology / non availability of infrastructure facilities nearby or for favorable economic conditions may not be attained.

4 It seems management challenge supersedes techno-economical challenge with reference to the time value. What is to be done with these marginal reserves? Should the marginal fields be developed or to be kept them undeveloped? Should these fields be outsourced or to be abandoned? Each possible decision is to be time evaluated so as to attain the true economical value of the reserves. Keeping reserves undeveloped can generate an artificial goodwill of the portfolio and of the company share. Abandonment means writing-off the discovery costs. For the bigger players this cannot be too critical as they are generally sitting on a large portfolio of reserves, but for medium to small players, the choice can be drastic. For the right decision to take the development has to be rapid and the production period should not essentially be longer. Case Studies: i) Development of Marginal field NBP (D-1) : The field situated at a water depth of around 90 m in the western continental shelf away from Mumbai at about 200 km south-west direction, was discovered in 1976 & put on production in 2006 with a modest production rate of about 5000 bopd after a thirty long years in view of marginal fields having low reserves, low oil prices, higher water depth, isolated, non availability of nearby infrastructure facilities resulting into poor technoeconomics. The field had initially produced with Early Production System ( EPS) & reached a peak production of around bopd. Seeing the field performance, encountering additional pays through development drilling, the 2P in-place had gone up and it was decided by the Asset management to further develop the field with higher production rate through hiring an FPSO and installation of ESP in all the wells having low GOR. The campaign commenced in 2013 & many hurdles like premature failures of ESP were faced and production level of bopd could be achieved through 21 wells on ESP. After observing feeble productivity from the wells, it was decided through a series of discussions to adopt a new methodology of temporary completion to stimulate and test the well using DST, prior to suitable capacity ESP completion. With implementation of higher capacity ESP, installation of conventional separators, Y tool, Dual ESP, Adjustable choke, Flow back tanks etc., the field could start producing around bopd to reach a new high and contributing to the Western Offshore fields oil production. ii) Development of Cluster-7 fields: The B-192, B-45 and WO-24 marginal fields together called as Cluster-7, are all in the Mumbai High - Deep continental shelf of Mumbai offshore basin, discovered in the early nineties. They are situated around 210 km west of Mumbai in water depths of m. The B-192 is oil & gas field whereas B-45 and WO-24 are predominantly gas fields. Due to their remote location and marginal reserves, a cluster approach was adopted to develop the fields on its own along with nearby blocks (B , B-192-A-1) to make the development commercially viable. The fields B-45 & B-192-A-1 are yet to be put on production. The company took only one year to chalk out a suitable development strategy through clustering approach. The cluster-7 was put on production in September 2013 with an initial production rate of 7500 bopd considering only three blocks (B-192-1, B & B-192-8) of B-192 field & WO-24 field in the initial phase. Through engagement of FPSO, the substantial reduction of back pressure and improved flow from the producing wells resulted in the fields peak production level to become doubled to around bopd. iii) Development of B-193 Cluster fields: The B-193 cluster fields consisting of eight marginal fields viz. B-193, B-172, B-178, B-179, B-180, B-28A, B- 23A & B-28, located in the Heera-Panna-Bassein block of Mumbai Offshore at about km to the west of Mumbai city in close proximity to the giant Bassein gas field, in water depth ranging from m. The first field in this cluster B-178 was discovered in Presently in total six fields out of eight fields are put on production. The remaining two fields i.e., B-28 & B-180 would be monetized shortly. The B-193 cluster has also aided the significant increase in production. It was witnessed that the wells of this cluster are highly productive. With the addition of new high production wells and application of new technology PURE perforation, these marginal fields production got boosted up to more than bopd. This PURE perforation technology not only creates immediate drawdown in the well bore like Under Balance perforation but saves the perforation from choking because metal debris generation during the perforation.

5 Conclusions: 1. The marginal field development is not only of short term strategic importance; it is also a key to future western offshore production. 2. In mature offshore basins such as the Mumbai Offshore Basin, future oil fields developments are being directed essentially towards marginal fields. 3. Developing these marginal reserves is of strategic importance, in terms of revenues, security of supply, industrial activity and to reduce the oil pool deficit. 4. Marginal field development is a techno-economical challenge at large. To make this production profitable new engineering practices have to be applied where fast track development, simplicity, mobility and reusability will be the key words. 5. New financial engineering is also required i.e., reducing fixed capital, transferring Capital Expenditure (CAPEX) to Operating Expenditure ( OPEX), are few characteristics of the necessary new financial concepts. References: 1. Internal Reports of ONGC (unpublished). 2. SPE ATW - Marginal Fields: Resources to Revenue, 4-6 April 2013, Goa, India. Fig.-1: Marginal Fields in Mumbai Offshore Basin Fig.-2: India s crude oil consumption vs. production Fig.-3: Production status of Major and Marginal field Fig.-4: Monetization status of Marginal fields

6 Table-1: Production Performance of Western Offshore oil & gas fields Year Major Fields (O+OEG), MMt Marginal Fields (O+OEG), MMt Total (O+OEG), MMt No. of Marginal Fields