<DrumBeat: February 10, 2009 The Oil Drum DrumBeat: February 11, 2009>

88 comments on A Visit to Chevron's Kern River Heavy Oil Facility

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Will Stewart on February 10, 2009 - 12:09pm Permalink | Subthread | Comments top

Good article, Gail, as usual.

While they mention that there is 3.8 billion barrels of proven and potential, I wonder how much is 'proven' (PD and PUD), probable, and possible.

It would also be nice to understand the EROEI of the steam flooding they are using.

I wonder how much of the equipment they have there is approaching replacement time, ada Simmon's Rust Never Sleeps.

Did you get the sense in any way that they were trying to 'steer' you to a facility they wanted to use as an API exemplar, or did you get to pick the facility?

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Gail the Actuary on February 10, 2009 - 12:20pm Permalink | Subthread | Parent | Comments top

I didn't get to pick the facility.

I felt the Chevron management was very open and honest with us. If they wanted to steer us to a "good" facility, they would have taken us to a start up facility, where hopes were high for ramped up production. I never heard any hype about seeing another peak at Kern River or other things that sound like they are out of a commercial. The management clearly put a lot of time into this, and were willing to answer our questions.

A lot of what is left as yet-to-produce in the world is heavy oil, or very heavy oil. I thought it was interesting to get to see this facility, to get an idea of what is involved in such production.

Clearly the EROEI will depend on whether you can use a given piece of infrastructure for 10 years or 40 year or 80 years. Chevron has managed to keep some very old equipment in operation, and this affects their cost structure. One thing that helps the EROI is that the oil is not very deep. Vertical wells cost somewhat over $100,000 each; horizontal wells are about double this. Chevron is able to get good prices, because it doesn't need the newest, fanciest equipment. Its contracts are short term, so it can quickly change to get better prices if they are available.

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ROCKMAN on February 10, 2009 - 12:53pm Permalink | Subthread | Parent | Comments top

Gail,

I suspect the "500,000 bopd" is a typo. Perhaps 500 or 5000 bopd?

With regards to the proven vs. other categories the inplace reserves are pretty well proven. With the amount of well control they have it wouldn't be too difficult to generate a fairly accurate map. But how much is "proven - economically recoverable" is another matter. When reservoir engineering auditors offer a future production forecast it always has a price forecast included in the model. One reservoir might have 500,000 barrels of proven "producible" oil at $80 per barrel but only 50,000 barrels proven at $30 per barrel.

Even if prices drop below Chevron's production costs for a time they would continue producing for longer then many might expect. Several reasons: waiting for prices to recover; waiting for new (probably deeper) drilling to find new production (drilled by Chevron or a sub-lessor from them); and lastly, to delay a huge environmental plug and abandon liability. Removing all the equipment, plugging the wells and cleaning up the areas to regulatory specs could cost many millions of $'s. About 15 years ago a client bought a S La oil field from Shell which had not been commercially productive for year but was still producing 500 bopd. Luckily for Shell they found a sucker to take a huge abandonment liability off their hands. Fortunately for my client I found an even bigger sucker to take it off their hands.

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Gail the Actuary on February 10, 2009 - 1:17pm Permalink | Subthread | Parent | Comments top

I corrected the amount to 500 barrels a day. Clearly if the whole field produces something like 80,000 barrels a day, one well can't produce a whole lot.

One thing they mentioned is that if they turn off the electricity for any significant length of time (I am guessing months rather than hours), the wells start to fill with sand. Thus, if Chevron is ever going to produce oil from this field, it needs to do so now. It really can't stop, wait a few years, and start over again, because the cost and time involved in reworking all the old wells would be prohibitive for the small production per well.

You make a good point about the cost of abandoning a site like this. It seems like this cost could be greater than just keeping it going, and not adding any new wells as old ones deplete. With their fancy software, they can find some very good pockets, so these are what they are targeting now. I would expect these pockets are still quite profitable, so they will keep on. It is hard to know what they do when these pockets run out--like you say, find a sucker to take the site off their hands.

With the number of bankruptcies we see now days, I wonder what the state of California will do if it finds a bankrupt owner in charge of Kern River, at the time it ceases operations.

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lengould on February 10, 2009 - 2:22pm Permalink | Subthread | Parent | Comments top

I wonder what the state of California will do if it finds a bankrupt owner in charge of Kern River, at the time it ceases operations.

Agreed, but that's been BAU to now, so no reason not to expect it.

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The Dude on February 10, 2009 - 5:19pm Permalink | Subthread | Parent | Comments top

Kern River produced 30.8 mb in 2006, equating to 84,383 kb/d, according to the California 2006 Annual Report of the State Oil and Gas Supervisor. This is one of the excellent publications made available from the CA Energy Commission. Here is a graph taken from that Annual Report:

So much for increased cost leading to greater production. Or other factors were at stake that impeded more crude from being extracted - the switch to ULSD in 2006, for instance. Again, read some of the EEC's publications, such as the Spring 2006 Petroleum Fuels Price Spike - Report to the Governor, to familiarize oneself with the multitude of factors at work in the economics of the hydrocarbon industry. It's nothing like the public perception of fat cats lighting up cigars with $100 bills and laughing as they effortlessly gouge us day in and out.

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Luke H on February 10, 2009 - 6:30pm Permalink | Subthread | Parent | Comments top

I wonder what the state of California will do if it finds a bankrupt owner in charge of Kern River, at the time it ceases operations.

Kern River might not be the most likely candidate for this wondering now but plenty of other currently producing resource extraction sites are. Those nasty little long term considerations economists used to sweep under what they called the 'social cost' rug. I've been away from formal schooling for a while, what is the term that is being used to hide these kind of future liabilities these days?

Thanks for the very enlightening post Gail. It would be interesting to compare what is done for cost control at a handy beat up old field near Bakersfield to what is done at a beat up bunch of remote ones in the Prudhoe area (I know it produces light crude but the cost conrols could be compared in some fashion). The old deferred maintenance model of cost cutting has proved problematic up there in the past.

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ROCKMAN on February 11, 2009 - 12:08am Permalink | Subthread | Parent | Comments top

Luke,

They're not sweep under the rug by economists for US public oil companies. Today those companies carry huge negative values on their balance sheets compared to the old days when they were ignored to a degree. This is especially true with offshore fields. But you don’t have to worry about a big offshore operator ducking that liability by selling to some smaller operator who later files bankruptcy. On Federal leases the property can change hands a dozen times and all those subsequent owners can file bankruptcy. But the liability always remains with the original lessor if no one else can pay. Exxon, Chevron et al can run but they can’t hide from those costs. Depending on water depths costs can run as high as $20 to $40 million. Two big liabilities with all fields are "NORM" and PCP's. Norm is naturally occurring radioactive material. In reality everyone else calls it dirt. I'm not kidding. But if there is any amount of NORM on oil field equipment and casing it has to be disposed of as per expensive regulations.

PCP was a common additive to lubricants for years. Like all lube some drips to the ground. After 20 or 30 years a significant amount can accumulate in the soil. And it takes major (and expensive) remediation remove it. For decades those Chevron pump jacks slowly leaked PCP onto the ground. Unless Chevron has already remediated the soil there are PCP levels in the ground that likely exceed reg standards by 10 fold or more. Just another reason to delay abandoning the field as long as possible.

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Luke H on February 11, 2009 - 2:42pm Permalink | Subthread | Parent | Comments top

Rockman,

Thanks for the info, your up close and personal knowledge of oil operations is really a great plus. Thanks again. I wasn't aware the liability stayed with the original offshore lessor if all subsequent lessors failed. What happens if original lessor has ceased to exist before the field is finished and all subsequent lessors also go bellyup? A lot of what iffing I know.

I'm guessing carrying that huge negative value on the balance sheets (for reclaiming oil sites) carries a huge tax advantage in one or more areas, (taxable real property value?) but that is just a guess.

PCPs are to be taken seriously but I wouldn't doubt NORMs danger are somewhat overblown. Radioactivity gets a certain amount of irrational response added to its real threats in a lot of situations. One case that comes to mind was what actually occured at Point Hope AK when they were planning to nuke a harbor up there (Operation Chariot was the project's code name, it was to be a practice run for an H bomb excavated sea level Panama canal). Fortunately the harbor was never nuke excavated--that would have made an ugly long lasting mess. What was done in the prep work leading up to it was that a few pounds of soil gathered from the downwind area of a Nevada (or was it New Mexico) above ground nuke test were sprinkled on the tundra. I think they were trying to see what kind of migration patterns the soil had. The amount of radioactive material spread was miniscule compared to the area it was spread over. But by the time it was cleaned up, revisited and on and on the attention that little bit of radioactive soil gathered was gargantuan.

The scenario so many at this site envision (I don't envision a collapse without violent trauma that would leave plenty of floating and otherwise spilled oil myself, so keeping energy supplies up one way or the other seems a real good goal) would almost certainly leave the mess at the finish. What government would be there to force or manage any kind of cleanup?

What I do see as likely if the U.S. weakens substantially is that all environmental laws that make any critical resource more expensive will be gutted, the cleanups will mostly occur on paper. Proper management of campaign contributions would certainly seem a way to hasten such legislative change along.

'Social Costs' if memory serves me correctly encompassed all the expenses that were never picked up by the private sector. Polluted land and water and long term health and genetic damage have been addressed substantially in the last several decades, though the social cost of man induced climate change has only recently shown up on the radar. Those costs could well be incalculable with any degree of accuracy for some time to come.

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Engineer-Poet on February 14, 2009 - 2:22pm Permalink | Subthread | Parent | Comments top

PCP was a common additive to lubricants for years.

PCP is an illegal drug.  I assume you mean PCB (polychlorinated biphenyl).

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Luke H on February 15, 2009 - 3:13am Permalink | Subthread | Parent | Comments top

I was pretty sure that was what he meant also but I figured someone would catch it (couldn't entirely trust my memory of the proper initials), PCB has left some ugly transformer storage yards.

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MacDuff on February 10, 2009 - 6:39pm Permalink | Subthread | Parent | Comments top

"I wonder how much of the equipment they have there is approaching replacement time, ada Simmon's Rust Never Sleeps"

Hi Will, I can't give you hard facts and #'s on your question, but I drive through the Kern field many many times each year and have noticed a lot of new equipment going in, one sees brand new and far larger pumps either replacing the older ones or going in as they drill new wells in the field. Rusted dead pumps are still visible, but fewer each time - so I think the replacement is happening.

Great article Gail, I drive through the heart of the Kern field so often and have so many questions - you've answered some of them, thanks.

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Will Stewart on February 11, 2009 - 2:26pm Permalink | Subthread | Parent | Comments top

Thanks MacDuff, I wonder how much of the rest of the infrastructure there is new (i.e., manifolds, piping, tanks, pumps, boilers, etc).

Anyone have any clues to the EROEI of steam injection/etc there or at other heavy (sour) oil sites?

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88 comments on A Visit to Chevron's Kern River Heavy Oil Facility

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