Tomorrow’s drilling world

By Simon Moores
Published: Sunday, 24 January 2010

Despite increasing attempts to pursue green technologies, the world’s thirst for oil and gas is set to ensure robust drilling mineral demand for decades

Many will see 2009 as year of significant change in business practices towards a more prudent and green way of operating. For many industries it was one of the worst economic downturns since the USA’s Great Depression beginning in 1929. Predictions of the start of the end for hydrocarbon and particularly oil driven sectors were rife.

Yet while the price of oil reflected tough times, the pace of global exploration moved up a gear to the highest level since 2000.

Prosperous areas of exploration for oil included: the Gulf of Mexico with BP finding what could turn out to be the world’s largest ever deposit, The Tiber; the oil fields of southern Iraq; an extension to Iran’s Sousangerd field, and continuing large scale exploration in Brazil.


Queuing for minerals: despite a short
term demand slump, minerals are set
to continue its supply to oil and gas
drilling fluids for a number of years yet.
Courtesy Shell

As for gas, offshore Nigerian deposits could begin to realise their potential as Russia’s Gazprom moves in, China’s offshore activity continues to surge and Spain’s Repsol has claimed to have found Venezuela’s biggest ever gas field. In addition, Middle East gas appears to be on the rise with the Western Libya Gas Project, one of the regions leading developments.

Slowly but surely, the oil and gas industry is moving away from traditional deposits as they close in on the end of their economic lifespans. This was most recently typified by the fact that exploration in the once world leading source of hydrocarbons, the North Sea, fell by 35% in 2009.

“The North Sea is in decline as a source of hydrocarbons and although there are companies out prospecting for more, Britain has no real incentives to encourage them and slow down the decline,” said Graham Sadler, the managing director of Deloitte’s Petroleum Services Group.

What Sadler’s comments touch on is the host of factors that affect oil and gas exploration and production regions it is not just about simple supply and demand economics.

This, therefore, makes predicting future trends of oil and gas drilling, and where minerals will be applied in the muds used, a hazardous task.

Minerals in muds

The term drilling muds (or drilling fluids1) is almost as broad a term as industrial minerals in that both are used to describe a whole host of products that are each a business of their own. For what is a critical element to the successful extraction of oil and gas, attempting to understand the basics of the subject can be challenging to say the least.

Drilling fluids can take the form of many products from weighting agents to sealants, viscosifiers to lubricants. Baroid Industrial Drilling Products, one of the leading manufacturers of fluids and part of oil field service giant, Halliburton, has 12 sub-categories of products while MI Swaco publishes a list of products which fall into nearly to 20 categories.

The oil and gas industry relies on drilling fluids in simple terms they cannot drill without them and drilling fluids rely on the supply of key minerals such as barytes, bentonite, calcium carbonate, iron oxide and potash. For many of these minerals there are no synthetic substitutes, which underlines the importance of the role they play in one of the biggest industries on the planet.

Drilling fluids fall into three main categories: water-based, oil based and synthetic (gas, foam, synthetic oils). Out of the three, water-based fluids consume the most minerals; fluids such as colloidal clay and polymer are products derived from clays such as bentonite, sepiolite and attapulgite.

While the categories of drilling fluids at first appear to be clearly defined, their application is not. Each fluid offers a primary attribute while well operators use a combination of fluids at various stages of the drilling cycle to manage and control extraction of the hydrocarbons.

“Most drilling fluids today continue to be water based for economic and environmental concerns, ie. bentonite/polymer muds with various additives to inhibit geochemical reaction with the geology. This would be regardless of sea depth,” Joe Barker operations leader, Bariod Industrial Drilling Products (Baroid IDP), part of oil services giant Halliburton, told IM.

He added: “Oil based and synthetic muds tend to be used only in highly deviated, horizontal or high temperature wells where water based muds are inadequate.”

For example, bentonite based additives come in pellet or granular form and are added to the borehole to seal cracks and fissures that may occur on the sides of the borehole and leak oil or gas.

Its primary function is as a sealant and for this sodium bentonite, which is also known as swelling or Wyoming bentonite, is used; it is the same mineral used for common cat litter for the same purpose.

A key secondary function of bentonite is as a viscosifier of liquid, usually seawater, in the well its thixotropic properties help control fluid extraction. Viscosifiers can also be an additive made from attapulgite clay; the product controls the thickness of salt water which improves the yield return and allows rheological stability in the well.

Viscosifiers are particularly useful for the operator in locations with highly saline water.

Drilling is the second biggest market for bentonite accounting for 20% of a global production total of 11-12m. tpa, while attapulgite is more specialised with a global output of around 3.5m. tpa.

Barytes is also a major drilling mineral with between 80-85% of the 8.5m. tpa global production destined for use in the drilling sector. Barytes specific gravity (SG) of 4.1 to 4.2 and above makes it an ideal mineral to use as a weighting drilling fluid.

A weighting agent is a critical additive to an operational well as it counteracts the force of the oil and gas when it is extracted preventing an explosive release and fluid loss.

Barytes is not the only weighting mineral used others include sodium chloride (salt, 2.16SG), calcium carbonate (2.7-2.9SG) and iron oxide (>4.85SG).

The range of drilling fluids also extends to polymer breakers which are made from chemicals based on lithium chloride. Zinc oxide is used in a product called a scavenger which lowers the dissolved oxygen content.

Well operators also use minerals in smaller amounts to fine tune factors such as pH levels and neutralise acidic gases. Caustic potash is used in small amounts to control pH levels. MI Swaco’s guidelines is to use 0.25lb/bbl for 9.0 pH or 0.5lb/bbl to attain 10.0 pH in the well.

Proppants or propping agents are also major drilling additives. These angular, high strength minerals fracturing (frac) sand, bauxite and man-made ceramics are flushed down into the reservoir and settle in the cracks and fissures, propping them open and significantly aiding the flow of oil or gas into the borehole (see IM November 2009: Gas fuels proppants prospects, for an in-depth feature on this).

Caustic soda (sodium hydroxide) precipitates magnesium and calcium into the well controlling the pH levels and neutralising gases such as carbon dioxide and hydrogen sulphide that could negatively impact yields or quality of product. Zinc carbonate is also used in a similar capacity.

But selecting a drilling fluid is not a cut and dry situation and depends on more than just the right minerals for the right application.

“Drilling fluid selection is based on a number of factors including availability, cost, environmental conditions, customs restrictions on importation of materials, regulatory controls,” Alan Spackman, vice president of offshore technical and regulatory affairs, International Drilling Association of Drilling Contractors (IDAC) told IM.

“The selection is made for a specific drilling program, and often for a specific section of the well for a drilling program. [The location of the rigs] is governed not only by the location of the undeveloped resource, but on both international and national political decisions,” he added.

Drilling trends

Trends in the oil and gas industry are not as straight forward as one may assume and are controlled by many factors.

The necessity of drilling muds to the oil and gas industry will remain, but the types of muds and grades of mineral used will undoubtedly flex with the location and type of drilling activity.

Perhaps the most high profile example of flexing with the changes is with regard to barytes which has been subject to a heated debate over suitable grades in recent years.

Until 2009, American Petroleum Institute (API) specifications, implemented in the 1980s, decided that barytes should be 4.2SG. Mineral supply constraints, however, have resulted in grades of 4.1SG barytes being introduced to the market, particularly in North America. But it is possible this lower SG grade could become a victim of changing drilling patterns.

The 4.1SG barytes is more suitable for shallower oil drilling, such as the land rigs that operate in Nevada, USA, but is deemed by some as too light to operate in deep sea wells.

“[4.1SG and 4.2SG] are both OK but in the more demanding Gulf of Mexico offshore market there is resistance to accept fluid systems weighted with 4.1 barytes since achieving very high mud weights that are sometimes needed to balance down-hole pressures (say > 15 PPG mud),” explained John Newcaster, vice president, supply chain at Baker Hughes Drilling Fluids

But as the industry increases the development of more challenging locations such as deep sea and sources with awkward access such as unconventional shale, and with the industry is more reluctant to use 4.1SG, demand could be impacted.

Shale gas sources have been tipped to revolutionise the European industry with the potential to unlock hundreds of trillions of cubic feet of new supply and is a potentially huge market for drilling fluids.

In the last year and a half, ExxonMobil, ConocoPhillips, Shell and OMV have purchased land across the EU in a rush for tracts of shale gas land with Poland, Hungary, Austria, Sweden and France drawing the most interest according to industry publication Petroleum Economist.

Newcaster explained to IM: “Even though unconventional shale drilling and deepwater are the fastest growing segments, the vast majority are still conventional wells. Deep water tends to drive barytes consumption, but it’s impossible to say that it will make a significant change in demand for any industrial mineral in the fluids sector.”

Minerals specifications are decided by the API and barytes is not the only regulated mineral. Others include bentonite, attapulgite, sepiolite and haematite.

In recent years, API specifications have been seen as out of date and out of kilter with the reality of mineral supply although the authority has gone some way to changing this by reviewing barytes (IM April 2009: Barytes weight loss: official).

“I expect that there should not be a change in the geologic targets as shale is a usual pre-requisite for an oil or gas cap rock, with sands being reservoirs, in most cases. I have no indication that this will change,” said Joe Barker of Bariod IDP.

Oil and gas still on green

As the green revolution engulfs the world it is easy to use the oil industry as a symbol for everything that is its antithesis.

With increasing excitement and expectation surrounding new technologies which are tipped to replace oil reliant vehicles such as hybrid and electric cars and nuclear and renewable energy the days are surely numbered for oil. Not quite.

The world runs on oil and weaning it off such a fixated addiction is not an overnight thing, it is not even a decade long trend. New finds continue to buoy the industry and keep the reserves sceptics at bay. The lack of ready-to-go replacement technologies, let alone the cost and logistical challenges of implementing these on a global scale, will ensure the long term future of the industry.

Oil producers are at threat from their own economics however. The world’s leading producers do not believe they can put the significant new finds into production at a price lower than $60/bbl.

“The appetite for opening new frontiers when prices were low in the 1990s was very small. Today, the biggest discovery of all is technology,” said Paolo Scaroni, the chief executive of French oil group, Total.

With oil presently standing at $80/bbl, producers stand well within the economic viability range. But price volatility over the past year has resulted in the value of the barrel plummeting to $32 and it is entirely feasible this can happen again in such an economically unstable world.

Doomsayers have been predicting oil’s demise for some time leading to talk of commodities key to emerging technology such as lithium and rare earths being crowned the “new oil”. But for now and for the foreseeable future, oil is still the only oil in town and its appetite for drilling fluid minerals will continue to be robust.

1For the purposes of this article the terms drilling fluids, drilling muds and drilling additives are all reference to the same item, a product  whether liquid or solid added to an operational drilling well to aid and control extraction of oil/gas and maintain the borehole structure.


Drilling minerals at a glance

Drilling fluids by value ($)


Source: Baker Hughes


Barytes




Total tonnages: 8.5m. tpa

Primary drilling usage: It is barytes weight or specific gravity (SG) which makes it ideal for use as an oil and gas drilling medium.

A specific gravity of 4.2SG and above has traditionally been the American Petroleum Institute (API) standard for much of the industry. Shortages of this grade in North America has resulted in the lowering of the standard to 4.1 SG of which there are reserves in Nevada supplying, in the main, the Rocky Mountains drilling industry.

For further reading see IM April 2009: Barytes weight loss: official


Bentonite



Total tonnages USA: 4.82m.

World total tonnages: 11-12m.

Primary drilling usage: Sodium (swelling) bentonite is, along with barytes, the major mineral used in oil and gas drilling muds. Bentonite’s ability to swell and block cavities helps form an impervious coating on the drill well’s walls, essentially sealing them and preventing leakage of valuable oil and gas. It is also a viscosifier in water based muds (IM July 2008: Bentonite bound for success).


Potash



World total tonnages: 57-61.2m.

Primary drilling use: to control pH levels and create solid free brines

*Includes oil and gas drilling, deice agent, metal electroplating, water softening

Graphite



World production: 1-1.2m. tpa

Primary drilling use: The only natural solid lubricant in the world, graphite is added to lubricate the drill bit and pipes that may be stuck.


Mica*



* Dry ground mica

World production: 370,000-400,000 tonnes

Primary drilling use: loss circulation prevention in the well; used in all three mud types


Other minerals used

Ground calcium carbonate:
weighting agent, formation bridging, and well completions

Hematite: weighting agent

Ilmenite: weighting agent

Soda ash: pH control primarily in water based muds

Attapulgite clay: sealant and viscosifier

Sepiolite clay: sealant and viscosifier

Frac sand: proppant

Bauxite: proppant


Tomorrow’s oil and gas producing regions

A look at where new oil and gas production could come from and where in the world drilling fluid minerals will be applied




1.
Deposit: Tiber, Gulf of Mexico, USA
Resource:
Oil
Owner: BP
Comments: Tiber is shaping to be the biggest ever oil find, reigniting the debate over availability of oil reserves. The deposit’s accessible reserves are expected to top that of the Forties field in the North Sea which is presently the world’s biggest ever exploited field, supplying 4,000m. bbl.

2.
Deposit:
Mariscal Sucre, Venezuela
Resources: Gas
Owner: Open for offers
Comments: an auction for one of the world’s biggest gas resources, 14.7 trillion cubic feet, closed mid-January without any private offers. Russia’s Gazprom and Italy’s Eni are favourites to take advantage of the expected improved conditions

3.
Deposit:
Guara, Santos Basin, Brazil
Resource: Oil
Owner: BG
Comments: The size of Guara is expected to rival that of BP’s Tiber find. Present estimations have reserves at around 2,000m. barrels.

4.
Deposit:
Nigeria (offshore)
Resource: Gas/Oil
Owner: Various
Comments: Russia’s Gazprom has begun to secure its position in this region which has suffered from lack of investment in the past.

5.
Deposit:
Western Libya Gas Project, Libya
Resources: Gas
Owner: Eni, Libya’s National Oil Corp. (50:50)
Comments: traditionally an oil producer, Libya is looking to boost gas production from 16,000m. to 31,000m. cubic metres in the next 6 years.

6.
Deposit:
Europe’s unconventional shale
Resource: Gas
Owner: Many including ExxonMobil, ConocoPhillips, Shell and OMV
Comments: A rush for shale gas resources in Europe is on with France, Hungary, Poland and Austria attracting the most interest

7.
Deposit:
Gro, Norway (offshore)
Resource: Gas
Owner: Royal Dutch Shell
Comments: Up to 100 billion cubic metres; expected to be the biggest in 12 years

8.
Deposit:
Basra, Iraq
Resource: Oil
Owner: ExxonMobil, Shell, BP, South Oil, China National Petroleum, Iraqi government
Comments: A major step forward in the development of Iraq’s oil reserves was achieved at the end of 2009 with the awarding of contracts to ExxonMobil and Shell to develop the 15,000m. barrel reserves of West Qurna and the opening of the Rumala fields for South Oil, BP, and China National Petroleum in the Basra governorate.

9.
Deposit:
Sousangerd oilfield, Iran
Resource: Oil
Comments: In August 2009, Iran discovered an additional 8,800m. barrels of oil in four new layers at its Sousangerd oil field.

10.
Deposit:
Vietnam
Resource: Gas/Oil
Owner: Various
Comment: Vietnam has opened up its country in a hope to strike it big in oil and gas.

11.
Deposit:
Bohai Bay, China (offshore)
Resource: Gas/Oil
Owner: Various
Comments: Four new wells started up in 2009


Cost anatomy of an oil well

$100m.
Costs that drilling deepwater wells can reach (note: the cost of the well life, not the rig equipment)

<10%
Cost portion of drilling fluids on completing the well

4-5%
The cost portion of drilling fluids from the exploration and production budget

30-50%
The percentage of exploration wells that strike oil