Economic Production
Thanks for joining us for another Oilfield Basics video blog. My name is Derek Krieg and we here at Oilfield Basics are trying to build the go-to educational platform for the oil and gas industry. There are so many awesome topics to cover and if you like what we’re doing or find this video helpful, please be sure to like, subscribe, comment, and share this with someone who you think could benefit from our materials. Today we’re going to be talking about economic production- what that even means, why we don’t often produce wells at their maximum rates, talk through the reasoning, and introduce a little bit of economic jargon. So, let’s dive in.
Let’s start off with the realization that we can, to some extent, control the flow rate from a well. We know that a difference in pressure will create a flow. We know from the million and one examples around us that flow will be from the high pressured vessel to the lower pressured vessel. We also know that the greater the pressure difference is, the higher the flow rate will be.
Now let’s transfer this knowledge over to the oilfield. Wells drilled into one or more pressurized reservoirs. The hydrocarbons flow from the reservoir rock, into the well, and then are produced to the surface processing equipment. Any gas will be sent into a pipeline or flared. The oil and water will be stored on site in tanks or sent into a pipeline as well.
Now the point of all that is that we can to some extent control the amount of production from a well by trying to create or maintain the largest pressure difference between the reservoir and the surface equipment. The larger this difference, the greater the amount of production.
When the well is relatively new, operators typically keep the well “choked back.” This is done with a mechanical restriction in the flow line at the surface, which creates a higher surface pressure which will thus hold the well back from producing at its highest possible rate. This is commonly done for many reasons, and they mostly all come back to economics.
First, flowing the well “wide open” could damage the lifetime productivity of the well (imagine the hydrocarbons flowing so hard through the reservoir that it damages it). Flowing wide open might also require a large and expensive infrastructure- i.e., production equipment, large pipeline, and storage capacities, etc.. To fully understand this, let’s check out a standard decline curve of a well.
This decline curve shows us that as we produce the well, the reservoir pressure decreases which (when all other factors are held the same) will decrease the pressure difference and lead to less production. These curves being graphed are the oil and gas production amounts over time. You can see how they taper off relatively quickly. So, as the production engineer, we have to size production equipment for the well. If we try to size it off of the peak rate, we’ll spend a lot more money on oversized production equipment and it will only run at capacity for a small period of time. So here’s option number 2- choke the well back and design the equipment for a lower, more sustainable rate.
Which method do you think will be the most economical? This will depend on the operating company’s preferences. Are they looking for the fastest return on their investment or are they looking for the highest overall lifetime value from their investment? This differs by the company. However, we always want to make sure that the income from selling the oil & gas is MUCH greater than the expenses that we have to produce the well…fees, maintenance, overhead costs, labor, trucking, water disposal, infrastructure costs, etc.. We need a large profit margin because we have to pay off the expenses from drilling and completing (or fracing) the well.
Now if you’re talking about an older well, there are many ways that production engineers can create a higher difference in pressure, or “delta P” as we call it. You can’t easily change your reservoir pressure, so most of our options are going to be at the surface. A common way to lower the pressures on the wellhead and processing equipment is to install a compressor to reduce the backpressure on the well and reservoir, but compressors aren’t very cheap and the amount of production uplift must justify the costs incurred to create the uplift.
In conclusion, how hard we chose to produce the well will typically depend on the economics. What’re our costs to produce at each rate? What’s going to drive the most value for the company? You might also find that companies alter their behavior based on commodity pricing- for example, companies might choose to take on the risk of producing their wells harder when pricing is high. Likewise, they might be more conservative when prices are low.
Well, that’s a huge topic to cover in just a few minutes, and indeed we just skimmed the surface. Be sure to like, comment, subscribe to our channels for future videos and check out our online courses at www.OilfieldBasics.com/learn if you’d like to learn more about the entire life and design of a well, production equipment, and so much more. We’ll see you in the next one!