Oil companies

Over the last decade some of the major oil companies have been using vast amounts of outcrop derived measurements to design and calibrate powerful computer models. These models are employed as tools to quantitatively describe reservoir distribution and flow behaviour within individual units. Hence this technique is not only important for the exploration phase but more so for the early assessment of production profiles. 

As the name implies the company basically rents the rig and crew on a per day basis. Usually the oil company also manages the drilling operation and has full control over the drilling process. This type of contract actually encourages the contractor to spend as much time as acceptable on location . With increased cost consciousness, day rate contracts have become less favoured by most oil companies. 

Introduction and commercial application Safety and the environment have become important elements of all parts of the field life cycle, and involve all of the technical and support functions in an oil company. The Piper Alpha disaster in the North Sea in 1988 has resulted in a major change in the approach to management of safety of world-wide oil and gas exploration and production activities. Companies recognise that good safety and environmental management make economic sense and are essential to guaranteeing long term presence in the industry. 

The UK government enquiry into the Piper Alpha disaster in the North Sea in 1988 has had a significant impact on working practices and equipment and has helped to improve offshore safety around the world. One result has been the development of a Safety Management System (SMS) which is a method of integrating work practices, and is a form of quality management system. Major oil companies have each developed their own specific SMS, to suit local environments and modes of operation, but the SMS typically addresses the following areas (recommended by the Cullen Enquiry into the Piper Alpha disaster) ... 

It is common practice within oil companies to use expectation curves to express ranges of uncertainty. The relationship between probability density functions and expectation curves is a simple one. 

The annual reporting requirements to the US Securities and Exchange Commission (SEC) legally oblige listed oil companies to state their proven reserves. 

The choice of contract type will depend upon the type of work, and the level of control which the oil company wishes to maintain. There is a current trend for the oil company to consider the contractor as a partner in the project (partnering arrangements), and to work closely with the contractor at all stages of the project development. The objective of this closer involvement of the contractor is to provide a common incentive for the contractor and the oil company to improve quality, efficiency, safety, and most importantly to reduce cost. This type of contract usually contains a significant element of sharing risk and reward of the project. 

The oil company s after-tax share of the profit is then available for repayment of interest on loans, distribution to the shareholders as dividends, or reinvestment on behalf of the shareholders in this or other projects. 

From the oil company s point of view, the balance of the money absorbed by the project (capex, opex) and the money generated (the oil company s after-tax share of the profit) yields the project cashflow. 

Host Government Fiscal system - tax rate - royalty rate - royalty in kind (e.g. oil) - company status (e.g. newcomer) - project status (e.g. ring fenced)... 

The project cashflow s constructed by performing the calculation for every year of the project life. Atypical project cashflow is shown in Figure 13.9, along with a cumulative cashflow showing how cumulative revenue is typically split between the capex, opex, the host government (through tax and royalty) and the investor (say the oil company). The cumulative amount of money accruing to the company at the endof the project is the cumulative cash surplus or field life net cash flow. 

While tax and royalty fiscal systems are common, another prevalent form of fiscal system is the Production Sharing Contract, in which the investor (e.g. oil company) enters into an agreement with the host government to explore and potentially appraise and develop an area. The investor is a contractor to the host government, who retains the title of any produced hydrocarbons. 

In the above example, the discount rate used was the annual compound interest rate offered by the bank. In business investment opportunities the appropriate discount rate is the cost of capital to the company. This may be calculated in different ways, but should always reflect how much it costs the oil company to borrow the money which it uses to invest in its projects. This may be a weighted average of the cost of the share capital and loan capital of a company. 

The oil company will also be required to periodically submit reports to the national oil company (NOG) or government, and to partners in the venture. These typically include ... 

Market forces determine the demand for a product, and the demand will be used to forecast the sales of hydrocarbons. This will be one of the factors considered by some governments when setting the production targets for the oil company. For example, much of the gas produced in the South China Sea is liquefied and exported by tanker to Japan for industrial and domestic use the contract agreed with the Japanese purchaser will drive the production levels set by the National Oil Company. 

Contracts made between the oil company and supply or service companies are a factor which affects the cost and efficiency of development and production. This the reason why oil companies are revising the types of contract which they agree. Types of contract commonly used in the oil industry are summarised in Section 11.0. 

During production, the oil company will need to structure its operation to manage a number of internal factors, such as... 

Mark Graham has worked for 14 years with major international service and oil companies in Egypt, Dubai, Brunei, the Netherlands and the UK, prior to co-founding TRACS International. His areas of expertise include petrophysics and asset evaluation. He is Director of the training division of TRACS International and is also responsible for all TRACS projects in the FSU. 

The Ziegler process, based on reactions discovered in the 1950s, produces predorninandy linear, primary alcohols having an even number of carbon atoms. The process was commercialized by Continental Oil Company in the United States in 1962, by Condea Petrochemie in West Germany (a joint venture of Continental Oil Company and Deutsche Erdid, A.G.) in 1964, by Ethyl Corporation in the United States in 1965, and by the USSR in 1983. 

This process is currentiy used by Vista Chemical, successor to Continental Oil Company s chemical business, and by Condea. In the Ethyl Corporation process dilute sulfuric acid is used in place of water in the hydrolysis step producing alum rather than alumina. 

A similar process to SMDS using an improved catalyst is under development by Norway s state oil company, den norske state oHjeselskap AS (Statod) (46). High synthesis gas conversion per pass and high selectivity to wax are claimed. The process has been studied in bubble columns and a demonstration plant is planned. 

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