6 Nov, 2017
What You Should Know as a New Petroleum Employee About Wildcat Wells and Exploration
Wildcat wells are an essential part of the exploration process, and can be defined as the first well to be drilled in a geographic region. The drilling of the wildcat well is actually the beginning of the final stages of exploration, and provides the first opportunity to bring samples of subsurface rocks and fluids to the surface for analysis. They are often referred to as exploratory or exploration wells.
It can be a challenging responsibility within a company to decide whether a particular well is a wildcat well. For example, if two wells are 10 miles apart and no previous wells have been drilled near them, both wells are probably considered to be wildcat wells. However, if the two wells are only 1 mile apart, which is relatively close geographically, the first well drilled is probably considered a wildcat well, but the second well is probably not considered a wildcat well. If a seismic survey indicates the apparent presence of a major geologic discontinuity between the two wells, then both wells might be considered wildcat wells. Additionally, the definition of a wildcat well will vary depending on your company and region.
Wildcat wells provide many important sources of information. Some of these sources may provide data not otherwise available, or confirm data obtained from other sources of information. These include:
Wildcat wells are the key to determining the presence of possible commercial hydrocarbon reserves. Appraisal wells are drilled to prove those reserves.
Common sense tells us that successful companies have a higher rate of wildcat well success, but this is easier said than done. The process of drilling in an unexplored or unproven geographic area has high risk, but also high potential rewards. An old engineering joke remarks that geoscientists are the most optimistic people in the world. Although a joke, it is easy to see how this pertains to drilling professionals in such an environment.
CURRENT STATE OF WILDCAT WELLS AND EXPLORATION IN THE INDUSTRY
The Use of Risk Capital Offshore is Much Greater Than Onshore
Offshore exploration will often require large amounts of risk capital to proceed. This is contrary to onshore shale development which has a low-risk capital component, and rapid pay-back that has made offshore exploration less competitive when competing for available capital.
Cost of Wildcat Wells Remain High
The high cost of wildcat wells is due to planning, technology for site selection including seismic data, and costs of drilling. Many companies are choosing not to invest in exploration because of the risk investing millions of dollars for a dry hole.
Increased Success Rate
Historical data collected from wildcat wells since 1985 supports the conclusion that success rates have increased over time. According to Offshore magazine, the success rate in 1985 was 19% and in 1994 had risen to 40%. A primary driver is developing 3D seismic technology. In the Gulf of Mexico (GOM) this technology has increased the chance of success of exploration wells to 1:2.
Innovative Seismic Technology on the Horizon
Today, new technologies allow companies to lower their risk involved with exploration wells, but not necessarily the cost. A few examples of the newest developed technologies are:
Direct Hydrocarbon Indicator (DHI) now available as Electroseismic technology – This technology uses electromagnetic and seismic energies improve E&P operators’ ability to identify hydrocarbon deposits with more precise imaging.
Ikon Science’s Ji-Fi – This new trial technology was able to accurately predict the location of oil-bearing sand for a new well in the Gulf of Mexico. It provides more productive targeting of oil-bearing sands and improves well placement on a map and at depth.
INOVA Geophysical’s iX1 – This technology is a unified central system for seismic operations. It provides flexibility for all terrains and mobilizes G3i HD with TZ capability.
Decreased Investment in Exploration Activities
Overall, there is a decrease in exploration budgets across the industry. Most companies are focusing on current investment efficiency, cutting costs or shale investments. At the SPE ATCE conference last month, the focus was discussing the challenge of meeting the oil consumption growth of 32% by 2040, while facing today’s “cost-cutting and deferred projects” industry environment. The strategies of lowering lift cost and maximizing cash flow speak to a future decline in production. Risk capital spending is key to replacing oil produced each day. If a company’s R/P ratio drops below 1, then a company is producing more oil than they are finding, and could find oil to replace produced bbl. by investing risk capital in wildcat wells.
Looking forward, the hardest challenge for the industry may be meeting the growing demand for oil while facing an environment of cost-cutting. Unconventional resources have become part of the solution, but will the industry need to see an increase in exploration budgets and wildcat wells?
Written by: Samantha Masey
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