Curious about the life cycle of an Oil and Gas project? Here, we break down the steps of the process in a way that’s easy to understand. You’ll quickly see that many factors, stakeholders, and talented professionals are needed in order for the project to succeed.
Exploration
The search for hydrocarbon deposits beneath the surface of the earth primarily uses a combination of seismic surveys and drilling wells. Exploration projects can be expensive, time-consuming, and risky, drilling a well may cost tens of millions of dollars and not find any hydrocarbons, this is known as a dry hole or a duster.
The potential rewards can be enormous, however.
Take the recent case of the Johan Sverdrup field, one of the largest discoveries ever made in the North Sea off the coast of Norway. It was found in an area previously thought to be exhausted from over 4 decades of relatively disappointing exploration and now stands to provide jobs and generate revenue for several decades.
Appraisal
After a company has found oil and gas reserves, it needs to assess how much there is and, more importantly, how much can be extracted.
The appraisal stage of a project may take years, and cost vast sums of money as more wells are drilled and further seismic surveys are done to better understand the reservoir.
If an appraisal is successful, then the project will move on to the development phase.
Development
Following a successful appraisal, the development phase is where the operating company will determine the best methods to extract and transport the hydrocarbons and the overall financial viability of moving to full-scale production.
The field development plan will be created to estimate the CAPEX and OPEX of the project. Many factors are involved including; the number of wells to be drilled, the recovery method, the type of installation to be used, the separation systems for the gas & fluids, and how the oil and gas will be transported to a processing facility.
Once the best estimate of all costs is in place, a company will be able to decide if the project will be profitable and grant FID to proceed with construction and ultimately move to production.
Production
Once a field is produced, this is the major source of revenue where a company can begin to recover its financial outlay and eventually turn a profit. Some fluctuations will occur over time as the level of production reduces towards the end of the field’s life.
Production may last anything from several years up to several decades depending on the size of the field and how expensive it is to maintain the wells and facilities. Operations and maintenance costs run to several million dollars each year, and safety is a paramount concern at all times.
Reservoir Engineers will monitor the performance of the field to plan any additional wells or improvements to boost production and maximize the number of hydrocarbons that can be recovered.
The Oil and Gas Revenue Life Cycle
Decommissioning
Once a field is at the end of its production cycle and no longer profitable to maintain, the site will be decommissioned.
This involves the removal of the rigs, production facilities, and any infrastructure which was in place. For offshore fields this is a hugely complex operation, and wherever possible companies will look to bring as much as possible back onshore for dismantling and to reclaim as much material as they can.
The key parties involved
Government
Will regulate the industry, provide fiscal and legal infrastructure, and collect and distribute any revenues.
National Oil Companies
State-owned organizations which engage in exploration and production activities, either independently or as part of a joint-venture consortium.
International Oil Companies
Organizations of varying size from fully integrated super majors which operate across the entire supply chain, smaller IOCs working Upstream, and independent exploration companies that focus on higher risk areas to then farm-out parts of their equity in return for drilling and project development support.
Operators
The owner or manager of a project is responsible for undertaking the production of oil and gas, often working as part of a joint venture.
Contractor
Companies involved in a contractual relationship with an IOC, NOC, or Joint-Venture to deliver an element of a project.
