Case Study- Kotner Oil Company

Introduction:

The case study is based in the Republic of Rivendell. Rivendell is an undeveloped country but boasts massive
oil and gas reserves. The oil industry of the country made headlines in the 60s with major discoveries but
since then there has been very few discoveries and none of them being a huge field. The country is situated in
a sensitive area and is nestled among biodiversity hotspots. Studies have also shown the possibility of
offshore deposits of oil and gas but this is yet to be explored and appraised. Being in an environmentally
sensitive region, the government has often received stiff resistance from the opposition parties as well as
from the various environment protection agencies. In a landmark change of events the new government has
taken a stand to develop the offshore assets to revive the countrys economy and the oil industry.

Given the limited expertise of the National Oil Company (NOC) with respect to operating in the offshore
environment it has given Kotner Oil Company a contract for 20 years to develop the newly discovered Gondor
field in the best possible way (economical and technical). You are the integrated subsurface team working
with Kotner Oil Company which has been entrusted with the responsibility of analyzing the field and come up
with the best possible way to develop the field. Your team has to consider all the different sensitivities before
coming up with your development proposal. If this study envisages economic viability of the field, contractual
terms will be extended for another 5 years.

Your teams ultimate task is to quantify the hydrocarbon resources found in the Gondor field and present the
best field development plan within the technical and economical limitations. For the purpose of this
exercise, you will focus on improving the accuracy of the estimate.
Based on the above case, present your plan to the Kotner Oil Companys management team and ask them to
fund the implementation of your proposal.

Field Information:

The Gondor field is an offshore field situated in shallow waters. Exploratory well MA-1 was the first well
drilled on the Gondor structure by the NOC which resulted in the discovery of the field. Since then, another
exploratory well was drilled on the southern part of the structure. Both the exploratory wells have seen gas.
The map shows the top of the carbonate build-up; the higher parts are indicated in red, the lower parts in
blue. The contours indicate the depth below sea level in meters. We have seen GDT at 3450 m TVDss in well
MA-1. No information about GDT/WUT is available for CA-1 Also a well test was conducted on well CA -1.
Data is available from an analog field belonging to the same geological setting about the contacts seen there.
We have contact data from 4 wells (analog) which is given in the table provided below. Also the analog field
showed an expansion factor of 235.

Well Name GDT (mTVDss) GWC (mTVDss)

PA-1 3350
PA-2 3421
PA-3 3462
PA-4 3487
In the wells, tools were lowered to log the quality of the reservoir rock. Here below you will find the logs from
the southern CA-1 well and the northern MA-1 well respectively.

CA-1

MA-1

Sample from well was taken for PVT analysis and was used to determine the gas properties. The results from
the PVT analysis is provided in the table:
Gas gravity: 0.76
Reservoir temperature: 255 degree F
Gas viscosity (initial): 0.0253 cp
Gas compressibility: 13.1*10-5 psi-1
Well bore radius: 1/3 ft
CA-1 was tested for a flow period of 100 hrs at flow rate of 5000 Mscf/day to determine reservoir flow
properties. The pressure drawdown data is presented in the following table.

t, hrs Pwf,
psia
0 4000
0.021 3407
0.042 3121.6
0.084 2829.2
0.146 2639.6
0.209 2556.4
0.418 2464.6
0.626 2432.1
0.835 2410.4
1.044 2394
1.46 2372.1
2.088 2347.4
4.176 2306
6.246 2278.4
8.352 2261.7
10.44 2247.8
12.528 2236.6
14.616 2225.5
16.704 2217.2
18.792 2211.6
20.88 2203.2
41.76 2185.7
62.64 2161
100.44 2104.5
Economics:

Some initial work has been done by an integrated team of technical and commercial staff to come up with an
initial field development plan, which is a best estimate of a technically feasible means of developing the
Gondor field. This plan was made based on quick study during the bidding process. While this plan will be
optimized later on, in its current form it provides sufficient information to decide whether or not the project
is economically viable. It is your job to perform this analysis and come up with a recommendation either in
favor of, or against, further investment. But there is a problem: this is a very early stage of the project and
significant uncertainty exists about key factors that affect the profitability, such as the size of the gas reserves,
the total cost of the facilities required to extract the gas, the gas price etc. In order to take this into account,
you would normally develop economic analysis for several scenarios that reflect the possible range of
uncertainties in key parameters like those mentioned above. In other words, it is important to understand the
answers to questions such as, What happens if the gas reserves turn out to be more or less than I currently
expect?

It is also worth noting that negotiations are ongoing with the government on the taxation rates. But as of now
the tax rate can be anything between 38- 42 percent. For the gas prices consider the present rates but also
take into consideration the possibility of the prices going lower.

You can make use of the following table to estimate the total cost in the 3 different cases: Best, expected and
worst.

Gas Reserves Gas Price Tax Rate Total well cost Facilities cost Facilities cost
(Platform, (Total cost of
pipelines, operation over
onshore gas 20 years)
plant etc)

The profits must be reported for the different cases in the template shown below.
Stakeholder Management Grid
Initial Field Development Plan:

Initial exploration in the Aslan sea has identified the Gondor field. The exploration team believes that there
may be the possibility of other oil/gas accumulations in the area although to date, no other discoveries have
been made. Following figure shows the initial plan.

Cost data: Well (All cost is in MM$)

Onshore Offshore
Vertical 3 6
Horizontal 5 10
Deviated 4 8

Cost data: For facilities use available literature data. You can use these values only after confirming it from the
facilitator.
Tasks to be done:

1. Calculate the GIIP from the given data and come up with an appraisal strategy. (Consider all cases
here. What if the entire structure is one field or multiple smaller fields? What will be the effect on the
GIIP)?
2. Generate a forecast by making use of a tank model (MBE/ spreadsheet based) and calculate recovery
factors taking into consideration the uncertainties in data. (Use data available in relevant text book in
case something is not available.)
3. Manage stakeholders: Identify stakeholders and their ways to mitigate their concerns. (Be ready to
present the grid and also why you placed the stakeholders where they are - what is their interest and
how critical are they?)
4. Project Economics.
5. Pipeline routing options and rationale behind selecting one.

Deliverables:
A summary of the work must be reported and presented to Kotner Oil Companys management team and ask
them to fund the implementation of your proposal. As a member of the Kotner Oil Company you work in a
team of between 3 and 5 staff. As a multidisciplinary oil company, each team must be made up of at least
three different disciplines. The report should consider the technical and economical development options of
the Gondor field.
The preliminary report from the team will consist of a one page summary outlining the plan, solutions to the
tasks mentioned above, management summary of key risk and opportunities.
Useful Information:
The gas recovered from the Gondor field is sweet.
The base price of the gas (if assumed) must be in accordance with the international gas prices.

General Rules:
Preliminary report to be submitted in single MS Word document in the format below:
o Maximum No. of pages: 1, Font type: Arial, Font size: 10.
o Subject Line: - Kotner <Team Name>
o Email your report at shellcasestudy2016@gmail.com .
o Kindly submit your entry before 6th February,2016 midnight.
o Mention your Team member names, their discipline and contact details.
Kindly make appropriate assumptions where required and justify your assumptions.

The team selected to make a final presentation to the Kotner Oil Companys management team will be
notified via email before the event. The format of these presentations (8 slides or less) will be specified at that
time.