2.2.

Issues that have arisen since last time.

Our most challenging task besides figuring out the CMG computer program was to

collect the necessary data, as the data that was given to us by the EORI lacks some fundamental
properties that are crucial to complete modeling of chemical flooding operations. In particular,
section 1.3 in this report notes the paramount importance of raw data showing interfacial tension
as a function of alkali and surfactant concentration. There is no substitute for this hard data in
chemical flood modeling; unfortunately, we do not have a great deal of this data, and we have
found ourselves resorting to using data from other fields reported in the literature.
Even though we feel that we have learned the basics of operation of the CMG simulator,
we have sill found that CMG can be finicky and will sometimes produce errors in certain
simulations for particular fields. This is particularly vexing, as we have run successful
simulations on several other fields using consistent data input methods. In the end, it appears that
some field simulations simply do not end up working, and we are struggling to understand why.
We did manage to get results for few fields, so the various results from these simulations will be
focus of the content presented in report.
To ensure the accuracy of the results, we want to run simulations on as many fields as we
can. So far, the goal is around ten fields. A sample of this size would likely give us more
certainty as to the accuracy of our results. At this point, we could come up with some more
definitive preliminary conclusions, which is the general goal for this project. Based on the few
fields that we have run so far, as discussed in the previous section of this report, the early
conclusion is that waterflooding usually results in greatest value, while the ASP and polymer
floods have yet to add a significant contribution towards the greater oil recovery and economic
enhancement. One of our next tasks should be to evaluate fields with different permeabilities to
1

see how chemicals would help in the lower permeability environments where pore sizes are
smaller and capillary trapping may be more extensive, which would result in the reservoir being
more responsive to ASP flooding or polymer flooding operations.
As oil prices are quite low right now, we also recognize the uncertainty related to any
economic analysis using the uncharacteristically low prices seen of late. To this end, it may be
ideal for us to come up with a process in which we input data into CMG, get the production data,
and then analyze that data with different prices of oil to see the effect on overall economics. We
may also consider reporting results in terms of non-financial metrics, as well, such as in terms of
total recovery enhancement, for example.
Finally, after more detailed study of the simulations done so far, we have come to the
conclusion that our producing bottomhole pressure may be too low, because we are seeing water
production at very high rates that probably cannot be sustained in the face of reasonable surface
facility constraints on liquid throughput. The producer bottomhole pressure was inputted as a
typical minimum that can be obtained using a rod pumping, artificial lift system. From casual
internet research on this topic, we found typical minimum bottomhole pressures reported for
such systems at around 75 psi , so this was the pressure used in our simulations. After further
consideration, however, we have determined that a minimum pressure such as this may not be
appropriate for a flooding situation in which continual water injection serves to maintain
reservoir pressure; this would likely lead to flow rates that are unrealistically high. It may be
contributing to the general biasing of all results so far toward waterflooding. If there is no
restriction placed on producing rates, then recovery could be greatly accelerated in the case of a
standard water flood over the case of an ASP or polymer flood in which large slugs of viscous

fluid must be driven through the reservoir. These more viscous slugs would consume more of the
available pressure drop from the injector to the producer and slow production rates and overall
recovery. The end result of all this will be a waterflood that quickly produces large quantities of
oil at a high water cut versus an ASP or polymer flood that produces oil more slowly at a more
favorable water cut. Even with the more favorable water cut, however, it may be that the delay in
recovery in the ASP/polymer case may be enough to cause these options to be less attractive than
a regular waterflood. Constraining total liquid rates to more normal levels, however, may
counteract this and cause reduced water cuts brought about by ASP or polymer flooding to be
much more valuable.
Thus, from this it appears that we may need to consider including total liquid production
rate constraints on the producers in our models. The difficulty we see with this, however, is that
the maximum practical liquid rate is likely to be a function of surface facilities constrains, which
can vary widely from field to field in terms of overall quality and capacity. Plus, we also
envision that detailed information on surface facilities arrangement could be difficult to locate.
We may wish to invest further research into this topic going forward in our design
implementation.

1.6.

Step 5 of Design Implementation: Evaluation of Economic Potential of Fields and

Field Ranking
Once reliable forecasts are obtained for different fields from CMG for the overall oil
production, we can use these results from the simulation to perform our economic analysis. The
basis of our economic assessment will be a discounted cash flows (DCF) model where estimated

revenues from the forecasted oil and gas production over time will be discounted back to the
present, as well as other anticipated costs. We intend to use a discount rate of 8% for this
analysis, which is roughly representative of typical discount rates used in many different
investment valuation applications.
For this analysis, we have identified a number of key costs to be considered. The first
important costs will be related to severance taxes and royalty, as these are flat-rate costs that are
applied directly to the gross value of the produced products and so are easily incorporated into
the assessment. Currently, the severance tax rate in Wyoming is 6% (Wyoming Taxpayers
Association, n.d.). Jordan has extensive personal experience as a land professional in Wyoming
including experience in analysis of federal title. From his general knowledge, he knows that
most productive land in Wyoming is located on BLM land. BLM leases will either have a royalty
rate of 12.5

th

on older leases or 1/ 6

these royalty rates, one arrives at a rate of

(16.6667 ) on newer ones. Taking an average of

15 , so this will be the royalty rate assumed for

most of our field analyses, unless specific data is obtained to the contrary. One other important
production-related cost is related to the produced water. Fields subjected to waterflooding and
chemical flooding often have high, attendant water production rates. This excess water
production often carries with it significant costs related to disposal of the water, as set forth in
great detail by Bailey, et al. (2000). Their comprehensive work on this important topic also
includes estimations of these water disposal costs. These cost estimates include costs related to
lifting, separation, de-oiling, filtering, pumping, and injecting. Based on their general industry
experience, they provide estimates of average disposal costs per barrel of water produced for a

variety of flow rates. We intend to use the cost estimates provided by this paper to determine the
relevant water disposal costs in our economic analysis.
Obviously, product pricing is an important factor in the economic analysis, and these
prices can certainly vary greatly on day-to-day basis. We have determined to use pricing data
obtained from the U.S. Energy Information Administration (2015a; 2015b, which reports typical
crude and natural gas prices for Wyoming producers. The prices used represent the most recent
prices reported in these databases (November 2014). These prices were $ 67.42/STB and
$ 4.59/ Mscf

for oil and gas, respectively.

The basic procedure followed in the DCF model involves determining the revenue from
production in each compounding period (determined from forecasted production and assumed
product prices), as well as the associated costs. These cash flows, then, will be discounted back
to present value using the assumed discount rate, as noted before. Appendix E provides a more
thorough example of the computations associated with this process, while Appendix F shows
comprehensive results for one of the fields analyzed thus far.
The final important cost to consider is the cost of the injected chemicals. Calculation of
these costs can be somewhat involved, as these costs come into play only at a certain points in
time when the different chemical slugs are injected. An example of the complications related to
this would be in one of our flood simulations for the Deadman Creek field. In this particular
simulation, the introduction of the chemicals was delayed until the year 2022, and chemical
injection continued until 2027. There were also periods when only type and concnetrations of the
injected chemicals were varied. These situations musts be dealt with carefully; the exact process
is more fully described in Appendix E. Prices for chemicals will likely be determined from

informal internet searches. These prices can vary depending on the exact type of akali,
surfactants, and polymer used.
In addition to all of these costs, we would also potentially like to research costs related to
operations charged by service companies and other similar entities. Once these are known, they
could be implemented into the analysis; these would have the function of bringing estimated
field values down to more realistic levels. However, we believe that the assumptions we have
made so far in relation to costs should be sufficient for the purposes of field relative rankings, at
the very leastif not for completely accurate field valuation.
The end goal of our economic evaluation is to rank fields in order of economic potential
for chemical flooding. As discussed in the previous section of this report, we intend to perform
flood simulations on as many of the most attractive fields, as determined by our screening work
in the previous semester, as possible. These simulations will be performed on a hypothetical 5spot pattern in each field, as discussed in the previous section, and, so the economic analysis
described in this section will apply to a flood of such a 5-spot. Thus, this strategy will require
translation of results obtained through forecasting and economic assessment of such a 5-spot to
an estimated value for the entire field. As will be shown in Appendix E in this report, the
economic analysis on the 5-spots will be split into two parts: an estimation of the net present
revenue from production (less applicable royalties, taxes, and water disposal costs) and an
estimation of the net present cost of injected chemicals. The total discounted chemical cost will
then be subtracted from the discounted net revenue to determine the overall net present value of
the 5-spot pattern. To translate these results to what could be expected from a full-field
implementation, we will simply divide the total net present value of the 5-spot by the assumed
pattern area to get an estimate of the net present value per acre for the particular flooding
6

operation. This may then be multiplied by the total field acreage (which we have available from
the EORI) to arrive at an estimate of the full-field net present value of the particular flood
analyzed. We intend to create forecasts and corresponding economic assessments of an ASP
flood, a polymer flood, and a simple water flood for all the fields analyzed. The flood type
producing the best expected economic results will be selected for each field, and the results from
these optimum flood types will be compared against each other for determining field rankings.

APPENDIX C. STAKEHOLDERS
Since the end of last semester nothing much has changed in terms of who we would be
dealing with, or the place of the operations. What did change was the overall economic
environment, where the price of oil dipped even since the last time we were preparing this report,
which was about 3 months ago. Since then, the oil dropped from about $70 to $50. That negative
oil price change perhaps could lead to a weaker oil operations activity in the areas, and it would
change the dynamics of all stakeholders involved. Now the investors would invest less into oil,
and service companies will buy fewer chemicals. Maybe due to this the price of chemicals would
go down due to a weaker demand. And having the potential lower cost of chemicals could
partially offset the dropping oil price when calculating the overall cost and benefit for the
ChEOR. If there are communities that were opposed to the oil boom or fracking, now with the
fewer activities they may be more satisfied with that.
1. Investors they are starting to invest less money into it as they see less returns on it.
Investors could be anyone, completely unrelated to oil or technical fields. They only care about
return and dont care about the oil or petroleum technology. For them if they see fewer returns
they are not going to invest into it anymore. In a future it will hurt the oil industry as it is always
in need of new technologies to keep producing new oil from a developed fields
2. Economic market as mentioned before, the price dipped even more, and energy
industry needs to be prepared for more decline. However, some believe that the price of oil may
have hit the bottom, so itll either stay at the bottom or rise just a little above it.

3. Chemicals as was suggested above, the price of chemicals may drop due to lower
demand. With that its availability may increase as bigger supply would predict.
4. Operations team or servicing company as these companies hitting recession, theyre
reducing the workforce and the budget. In those conditions the pace of operations may slow
down. If the price will go down even lower they may completely refuse to do the work, and
therefore they will drop from our stakeholders list.
5. Government and regulatory agencies No changes there. We may speculate that
perhaps some of the tougher rules could be eased to encourage the oil development during the
hard times. Other than that itll stay the same as per last semesters report.
6. Local municipalities, towns, public they may notice a slowed down activity in the
region. Those who opposed the Big Oil may be satisfied, but those were for the oil development,
may want those companies to come back, and perhaps encourage local governments to
implement new rules to ease the operations rules or life some restrictions that were in the past
preventing the oil companies of conducting the operations easily.