Understanding the oil and gas industry – Part 2

Exploration & Drilling

Before an oil company can actually go and explore underground for oil and gas, permission must first be obtained from two owners: the surface property owners who own the land where the exploration and production facilities will be built, and the mineral rights owner who owns the actual petroleum beneath the surface. Believe it or not, these aren’t always the same person depending on how the land was sold and the lease was written up.

In fact the United States and Canada are two of a handful of countries that allow the mineral rights of the land to be owned by private individuals or organizations instead of the government. Most countries, especially in the Middle East, have all mineral rights owned by the country’s government which is then mined by the National Oil Companies, regardless of who owns the land.

In the United States, a landman will negotiate the purchase of the exploration and production rights between the oil company and the landowners. Once the rights have been legally secured, the area is ready for drilling to see if oil really exists on the prospective land that’s just been signed.

Once the exploration and production company is ready to move forward and begin drilling, the site must be prepared for drilling. The land is cleared and leveled and access roads, if necessary are constructed. A water source is necessary for drilling, so either a local source is located or water will have to be trucked in or a water well must be dug. The final step in getting the site ready is to dig reservoir pits to hold the rock cuttings and drilling fluids and mud that come out of the ground.

Once the site is ready the exploration company will contract out the drilling work to a company who specializes in drilling and hire a rig and their labor crew by paying their day rates to accomplish the work.

Once started, drilling rigs operate 24 hours a day until the job is complete.

When a new well is drilled, the tall oil derrick that most people associate with oil and gas wells goes up. The derrick is used to hold the cables, pipe sections and other equipment used to lower the rotary drill bit into the ground.

When drilling begins, pressurized drilling fluid or mud is pushed through the hollow pipes that turn the drill bit. The drilling fluid cools the bit and moves the rock cuttings that the drill makes to the surface, as well as coats the drilled hole to prevent cave-ins.

Geologists onsite will then further analyze the rock cuttings that have surfaced to determine if oil is below ground.

Once the well has been drilled, the drilling crew removes the drill string (the pipes and rotary bit) and turns the job back over the exploration and production company, who must then decide how to complete the well based on what they’ve seen so far.

The well will either be given a production completion, if the company decides to go ahead with production and begin building the surface installations required to extract, store and transport the crude oil or a dry hole completion where the well will be plugged with cement and abandoned if there is not a sufficient enough amount of oil to justify further production.

If the well has commercial oil that can viably be produced, then the well will be completed and cased. Casing is intended to prevent the contamination of groundwater as well as protect the structural integrity of the hole. Steel pipes, which are usually 40 feet long are screwed together, placed in the hole and cemented in place to the wall. Once the cement has set, drilling continues through this new layer of casing until the next section has been drilled and the next set of casing can be inserted and cemented into place.

The pipes continue to get smaller in diameter the deeper the well is drilled since each casing pipe has to slide within the previously set casing to reach its final destination. Once the drilling reaches the pay zone, or where the oil is, this final set of casing is perforated so oil can flow up through the casing to the wellhead above ground.

Tubing, which is 2-7 inches in diameter runs through the well for oil and gas to flow through and is held in place by packers, which center the tubing in the well and prevent oil and gas from coming between the casing and the tubing.

If the well is set to begin producing, the exploration and production company will frac the well to begin inducing the oil to flow upward to the wellhead.

Once the well begins producing, a wellhead or Christmas tree, as it resembles, will be installed at the base of the well to regulate the pressure of the well and the flow of oil and gas.

An operating company will then resume care of the well to make sure it is tended to, transported to market when the battery tank is full and the upkeep is presentable and environmentally safe.

As the oil or gas is transported to refineries and markets, purchasers will then begin sending revenue checks to the operating company, who then will turn around and split the revenue between all the investors of the well.

For further reading and information on this process in greater detail, please read Oil 101 by Morgan Downey. He goes into phenomenal detail about the entire process of oil and gas, as well as history and a look at deepwater drilling that was immensely helpful as I researched this topic.

To see a 3D simulation of drilling an oil well, visit Energy In Depth’s animation here.

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