Robert Trice, CEO, Hurricane Energy, UK
Dr. Robert Trice, CEO of Hurricane Energy speaks about his company’s efforts to explore previously little considered fractured basement reservoirs. Detailing his businesses pioneering efforts, he also reveals the huge opportunity this resource represents for the entire UKCS.
In Vietnam and Yemen, fractured basement reservoirs have been previously exploited. If this opportunity is so clear in the UK, why has this not been taken before?
Looking at the history of basement reservoirs in Vietnam, Yemen and other countries allows one to make some comparisons, in that these deposits were discovered by accident, and were serendipitous discoveries. Explorers were looking for shallow targets in sediments that were lying on top of the basement. Having drilled through these sediments, they discovered the underlying basement with its oil. Further experience allowed explorers to target these reserves deliberately.
In the UK, this has not happened because there were many alternative, relatively easier targets to chase such as large sandstone reservoirs. These reservoirs have traditionally been easier to evaluate using well practiced geological and reservoir engineering models, than fractured reservoirs which until recently have been more difficult to predict and understand than classics. Lack of understanding, experience or risk appetite has kept the UK mainstream from developing these resources. Technologically, however, what we have seen since the mid 1990’s is that a combination of 3D seismic and wireline techniques, such as image logs and dynamic testers like Schlumberger’s MDT, combine to allow much better evaluation of fractured reservoirs.
Fractured Basement Reservoirs are harder to predict. How is Hurricane developing techniques to locate and evaluate these resources?
Finding the fractured basement areas is the easy part of the process. Basically, one is looking for large structures that have the normal components of a trap: reservoir, seal and source. Hurricane identified areas around the UK where those were consistently present, and cross-referenced this with sites where existing drilling had taken place, either finding oil (or leaving it there) in the basement or sediment. As a result, this approach taken by Hurricane has significantly de-risked the fractured basement prospects being explored by Hurricane from an exploration perspective.
The principal challenge is evaluating the reservoir from a modelling point of view, calculating porosity, fracture density, fracture orientation and water saturation—these are the key aspects that must be investigated. Hurricane has its own bespoke technique for this in-house.
Hurricane is working with major specialist service companies as well as universities to push forward understanding of this resource. The skill-set that Hurricane offers is highly specialist and offers a route to significantly de-risk investment in this source of oil. Our drilling targets are seismic scale faults and the fractures associated with them. This year, we plan to do something new, which is to drill a horizontal well not to find oil, but to ensure that it flows at a commercial rate. This is the biggest challenge that Hurricane is yet to face.
Your economic model predicts that basement reservoirs will be economically viable at over 85 USD per barrel. Are you not concerned that oil prices may fall, and price you out of the market?
That figure was one used as a reference briefly; it is not accurate of the cost of obtaining basement oil. The break-even price depends on the size of the resource modelled. Hurricane used 85 USD as a benchmark, but our resources are profitable at less than that. Basically, one of the reasons that the company is quite so ‘gung-ho’ about the Lancaster well is that we have two volumes assessed on that site, one within a structural closure that has a low risk factor to it. This is referred to as a 1 C case, which is associated with 60 million barrels of recoverable oil. This is absolutely developable—Chrysaor is developing a sandstone reservoir to the south of Lancaster, in a similar water depth of around 40 million barrels.
Below those 60 million barrels is more oil, a second resource. Given these observations, we consider our Lancaster resource to be commercial at oil prices lower than our base case of 85 USD a barrel.
What are the next steps from locating this oil and moving it to market?
A new play, be it basement or sandstone, will not become acceptable to the industry or market until many wells have been successful. The first step in de-risking this asset will be the aforementioned horizontal well. If Hurricane can obtain a commercial flow, then this gives us confidence that the sizeable volumes found there could be realized. The next challenge is to de-risk those volumes further, detailing whether the opportunity at stake is 60 million barrels, 200 million, or even 400 million. What the business will need to do is to drill another pilot well on the crest to determine how deep the oil goes, and whether there is an active aquifer present, which is indicated by some data already acquired. Presence of such an aquifer would mean that the resource numbers the company has published could be pessimistic because the recovery factors would most likely increase significantly in the presence of such a feature.
One must remember that at Lancaster well, the company has already suspended production at a well that was producing 2,500 barrels a day, which is ready for tying into any new production facility. This is also intended for the planned horizontal well, and means that in a couple of years’ time the company could have four wells ready for production. All well planning has been considered as part of a phased approach, and the business is confident that this year’s well will work.
Following a successful 2014, Hurricane plans to drill a further horizontal well and a monitoring well prior to submitting a field development plan.
Mr Keith Kirby (K.K): We are using production grade casing on this well so that in the case of success, the well will be ready to tie in to a production facility.
In terms of the wider North Sea, you have three billion barrels of oil only in your own acreage; what are the implications of Hurricane’s technology for the wider North Sea?
If one considers the P-10s, then the maximum oil available that we have currently predicted is three billion barrels; however, there are a couple of caveats to that, as it only considers the P10s and secondly, we do not as yet know the extent of the oil column. Looking at basement reservoirs globally, one can have hydrocarbon columns in excess of one kilometre. Hurricane has only drilled as deep as six hundred meters. There is massive potential for stratigraphic upside. Assuming that Hurricane is only half right, and there is only 1.5 billion barrels on the company’s acreage, this still means that there is the potential for billions of barrels in the basement around the UK. Last month, I spoke at the Petroleum Exploration Society of Great Britain (PESGB), and detailed basement opportunities around the UK. Pilot produced a map last year of what they called ‘proven basement plays’ which include the Rona Ridge and Central North Sea. Prospective basement also is highly likely in the Atlantic Margin, running from the West of Shetland all the way to Ireland, this geological structure is ideal for basement, featuring massive basement ridges with Kimmeridge clay overlapping, and the source is directly in contact with the reservoirs, and there are very thick cretaceous seals over the top. It is a massive opportunity, and a challenge suitable for the application of deep-sea rigs. There has been some 3D seismic covering the area, but undoubtedly there will be gaps.
There is massive potential, and in the North Sea there is basement with proven oil. One company, Enquest, is drilling the Cairngorm basement prospect as we speak. Their success will further de-risk basement
Given the implications of your work, what do you think the British and Scottish Governments should be doing to support companies seeking basement reservoir’s aims?
In an ideal scenario, a similar tax regime to that employed in Norway would be ideal, though sadly this is a non-starter. The most practical solution to fast-track basement oil would be to provide a tax break on the first 50 or 60 million barrels produced. This would be a powerful incentive for the industry to pursue this opportunity to proof of concept. Once it is proven on one discovery, be it Lancaster or Whirlwind, then basement will have been de-risked for the UK, and such a tax break would represent a minimal loss of revenue for the exchequer. It is the ultimate way to accelerate field development and return further monies to the UK.
Basement could be a strategic resource for the UK. In a country that relies on the North Sea for energy and for tax revenue, then it is crazy not to be exploring and appraising this resource.
Which would be two reasons why you would encourage the purchase of Hurricane Energy shares?
Firstly, arguably they are very cheap at the moment, and the company has a very low valuation compared to our net asset value.
Secondly, soon we may have a transformational result. A well is going down into proven oil and is designed to test commercial flow. Basically we have significant assets—three billion barrels of recoverable oil to chase, which is notable across the UK industry. All Hurricane’s remaining prospects have proven oil on structure. The level of geological risk is therefore low and focused on the ability of the basement reservoir being able to deliver commercial flow rates. Should this year’s well be a success, it is likely that our other assets will be significantly de-risked to be feasible across our other assets as well.