How to assess future technology achievements in order to produce commercially quantities of heavy oil in ultra deep water ?
The largest remaining reserves of heavy oil can be considered an important energy source for future supply. Recent discoveries of heavy-oil in ultra-deep environments have stimulated several companies in investing in these new assets for future revenues despite the uncertainties about technology development for future field exploitation. This paper presents a forecast model for assessing future technology achievements – necessary for the development of heavy oil fields in ultra-deep water through logistic utility models. Using simulation results of three hypothetical fields with similar characteristics to some recent discoveries in Campos Basin in Brazil, a scenario for the next ten years was developed based on the decision to go ahead with the projects. A time-trend curve was employed to estimate the necessary period to achieve suitable technologies for field development (costs reduction) using a technological risk-aversion coefficient. The forecast model executes an economic sensitivity analysis on key input variables such as oil prices, oil characteristics (viscosity, API gravity), production profile, capital expenditures and operational costs. These uncertain parameters are important because production technologies for heavy oil in ultra-deep waters are not completely dominated by the industry. Simulations from three selected models indicated that under the worst CAPEX and OPEX scenario for heavy oil, a value reduction of 50% would be necessary for both parameters and the logistic model estimates that the technology would only be available after 10 years. Introduction The search for new oil reserves has directed the efforts of the petroleum industry beyond the conventional exploration and production strategies. This new frontier is defined by the level of embodied technology employ by the oil industry to transform potential oil resources in commercial reserves as well as by the knowledge of geological process in discovering new opportunities. As the traditional exploratory prospects become more difficult to find and new discoveries more scarce, the development of new technologies for economic production of unconventional resources such as heavy and extra -heavy crude is crucial for the oil industry. Large supplies of heavy-oil will be needed in the next decades to replace the production decline of medium and light crude. Heavy-oil is often produced conventionally; however it is important to define some characteristics of these oils. Heavy and light oil differ in viscosity and density. Heavy-oil is defined here in this paper as oil with °API gravity of 15° to 19° and extra -heavy-oil with 11° to 15°API gravity. Recent results from oil companies operating in offshore areas rank viscous oil with viscosity between 10 and 50 cP @20 °C; extra-viscous oil between 50 and 400 cP; dead viscous oil ranging from 400 to 5000 cP @20 °C; and dead extra -viscous oil varying from 5000 and 50,000 cP @ 20°C. Some other classifications of heavy oil can be found in Speight, EhligEconomides et al and Thakur Recently, significant offshore heavy oil discoveries were made in ultra -deep-water of Brazil and West Africa. Among the new technologies required for commercial production of these heavy oil reservoirs in deep water, new artificial lift devices and long horizontal wells length can be detached, completed with efficient sand control mechanisms (Pinto el al). Besides providing commercial value for the heavy oil wells, it is expected that these new technologies will create a new value for such resources. Indeed, heavy oil reserves can become more available over time in these environments if the cost-reducing effects of new technologies (reduction of CAPEX and OPEX) more than offset the cost-increasing effects of depletion. Offshore heavy oil discoveries can be considered good assets for future revenues if new technologies are available to transform the potential reserves of heavy oil into viable projects. The oil companies in this context are submitted to severe investments commitments and have to deal with the following technological uncertainties: SPE 82019 Forecasting the Development of Heavy-Oil Reserves in Ultra-Deep Waters Using Technological Risk Models Saul B. Suslick, SPE/Unicamp, Denis J. Schiozer, SPE/Unicamp, Francisco Nepomuceno, UERJ/Petrobras S/A and Ricardo Furtado, SPE/Unicamp – State University of Campinas 2 Suslick, Schiozer, Nepomuceno Filho and Furtado SPE 82019 § How to assess future technology achievements in order to produce commercially quantities of heavy oil in ultra deep water? § How companies can estimate future field development for the next five to ten years? § When will these new technologies be available to reduce present production cost levels for these oil types? This paper proposes a model that enables decision makers to deal with the uncertainties mentioned previously by using a logistic utility model. This model allows the inclusion of technological advances into the process of capital allocation among a set of offshore heavy oil E&P projects. The model provides the means to measure the risks associated with the development of these heavy oil reserves and takes into account the contributions and interactions between financial and technological characteristics (or parameters). The main motivation for such a model is to understand why firms are pouring money and efforts in heavy oil projects, despite the fact that technologies are not yet fully dominated. Hypothetical projects with three different oil types from discoveries in ultra-deep-waters in Brazil were chosen for the proposed study in order to estimate how long it should take to get the appropriate technology to allow an acceptable level of cost reduction. This paper is divided into three sections. The first section discusses the methodology for evaluating and measuring technology risk aversion and its modeling through logistic functions. The next section presents a decision analytic methodology which is used in the proposed model. This methodology enables a firm to combine technology and financial aspects of the E&P decision framework, and to systematically forecast the emergence of the new technologies for cost reduction associated with each of these dimensions. The last section presents the application of the methodology for three hypothetical projects, simulating the potential of cost reduction related to the technological diffusion. Technological Risk Aversion and Logistic Model Technology in the oil industry is an organized process that enables companies to generate a product within a defined time and cost constraint. Two relevant characteristics of technological innovations are important in the conception of the proposed model for heavy oil in deep water: (1) technology can be improved over time; and (2) a succession of different technologies emerges over a period of time to satisfy the demand for improvement of a given capability. Lanford and Martino have identified at least three major characteristics of technological innovations that have some similarities with the present case. The first characteristic is the S-shaped curve of capability improvement over time that can be assumed by most deep-water developments. These technologies seem to evolve many S-shaped curves for different capability improvements over time. The results obtained in the technology innovation process show that an envelope of a succession of S-shaped performance curves over time. A roughly modified exponential curve (or logistic) can be used to describe the overall technological progress in the selected capability, including the extraordinary breakthroughs which have occurred in deep-water technologies during the last decade. The justification for this notion is that the past performance of the “system” is likely to be a good model for its future performance that is, the system simulates itself. The last characteristic is that the substitution of one technology for another tends to follow the familiar S-shaped curve. Substitution increases slowly at first, faster as acceptance grows, and then more slowly as saturation is reached. A basic assumption, is that once the substitution of one technology for another has begun, it then continues to completion. Nepomuceno et al, developed a decision making model for technology and financial variables based upon an envelope S-shaped curves of prevailing technology for deep-water technology exploration and production between 0-2000 meters of water. The present work proposes a model that includes not only a logistic curve representing the present technology, but also the future upgrading that could be developed within the next ten years when companies will be operating in the ultra deep-water exploration blocks. In addition, it is necessary to include the behavior of companies indicating their risk tolerance to technology challenges and the rate of advancement of new developments for offshore heavy oil. An important indicator of this behavior is the participation (bet) of companies in current (or recent) bids offered in Brazil and West Africa. How successful will they be in the future? How long it will take for the development of the necessary technology for commercial extraction of offshore heavy oil? The answers are not simple. Some decision-makers estimate that technology capability for deepwater heavy oil fields will come within the next 5 to 10 years. In contrast, more aggressive companies make their decision now in the bid rounds and estimate that the technology development follows a logistic curve and will be fully operational within the next few years. Assessing future technology developments for offshore exploration is an important element of the decision framework. This assessment phase helps the company to estimate the effects of new technological solutions for deepwater operations and to identify the characteristics of technologies required to solve future problems. This trend can be confirmed by a recent 
Managing Technological and Financial Uncertainty: A Decision Science Approach for Strategic Drilling Decisions
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