Recently, I visited Chevron's Kern River Heavy Oil field, near Bakersfield California, as a guest of the American Petroleum Institute. Kern River is an extremely old field, discovered in 1899. The oil flows a bit on its own (API=13), but really needs to be heated to be easily extracted or to be shipped by pipeline. After more than a hundred years of pumping, most of the available oil has been extracted--a total of a little over 2 billion barrels has been extracted. The additional amount that can be extracted will depend on the price of oil and how well Chevron can minimize costs.

The site produces about 80,000 barrels a day from 8,000 producing wells, meaning that on average, each well produces about 10 barrels of oil a day. In order to make money with this type of operation, Chevron must be very efficient in everything it does--reusing equipment whenever possible, using the best techniques possible to find the remaining pockets of oil, and prioritizing the workload of the employees, based on which activities are most likely to produce a profit, and which activities are not cost effective.

In the recent past, production has been declining at 2% or 3% a year. Chevron's goal in the near future is to hold the decline rate to 1% per year. No one knows how much additional oil can profitably be produced, but rough guesses were in the 200 to 500 million barrel range. This range equates to 10% to 25% of the oil produced to date as possibly being economically available for extraction.

In this post, I will tell you a little about what I learned on my trip, and also offer some thoughts on whether heavy oil is likely to be a panacea for peak oil.

[editor's note, by Dave Cohen] Fellow TOD contributor Bubba is co-author of this report. He is an industry insider. It seemed important for those of us concerned about peak oil to respond to the Jack-2 test well result and all the publicity it has spawned. I also had conversations about this piece with Byron King at Whiskey And Gunpowder. Byron writes frequently about peak oil issues. I take full responsibility for this post's contents since I did the final editing.

With the successful test drilling of Jack-2 in the ultra deepwater Gulf of Mexico, there has been a media blitz proclaiming the good news. The "peak oil" theory is under attack. From Business Week's September 7, 2006 article Plenty of Oil--Just Drill Deeper The discovery of reserves in the Gulf of Mexico means supply isn't topping out, we learn

You can tune out all the scare talk about Peak Oil for a while--probably a long while. Peak Oil is the theory, on the verge of becoming conventional wisdom, that the world's petroleum supply is topping out and will not be able to meet global demand soaring along with the economies of China and India. But a successful test in a mammoth field deep beneath the Gulf of Mexico, announced on Sept. 5 by Chevron (CVX), Devon Energy (DVN), and Norway's Statoil (STO), should help put that scary scenario on hold for decades....

Cambridge Energy Research Associates predicts world oil and natural gas liquids capacity could increase as much as 25% by 2015. Says Robert W. Esser, a director of CERA: "Peak Oil theory is garbage as far as we're concerned."

Let's take a closer look at the prospectivity, geology, economics, technology, reservoirs, hydrocarbons and logistics of the Lower Tertiary play in the Gulf of Mexico (henceforth the LTGOM).

There are a couple of new documents out on the Web that you might find interesting.  The first is the initial Discussion Analysis based on the ongoing "Will You Join Us" campaign by Chevron (for which thanks to Powerswitch).  The second is the full CIBC Monthly Report (a pdf file) for which thanks to Big Gav.

 The initial Chevron discussion was on the topic "How can we make oil and gas supplies last longer, as the search for other fuels continues?"  The debate was summarized by the Aspen Institute, which also provided a couple of contrasting expert opinions to get the debate started. They also seemed quite happy to editorialize a bit when it came to the reporting as in:

Perhaps surprisingly, no one mentioned the potential of cellulosic ethanol, using as a feedstock biomass composed primarily of plant fibers that are inedible by humans."

Although biofuels were the subject that generated the most discussion among the participants, with some 1,072 responses which were mainly from individuals, about 10% coming from academic addresses.