On Monday evening, Edgar Rangel Germán, Commissioner of CNH, posted on his Twitter account about CNH’s efforts to set a trend in Enhanced and Improved Oil Recovery, colloquially known as EOR and IOR.
Both methods involve any process, or combination of processes, that are applied to economically increase the volume of oil recovered from the reservoir. Although EOR and IOR are sometimes used interchangeably, some product developers make a distinction based on the oil’s consistency, whereby EOR involves the recovery of immobile oil, while IOR focuses on the displacing of mobile oil.
According to a paper written by the commissioner, IOR-EOR would be the best approach to solving the problem of declining oil production in Mexico. IOR-EOR – A historic opportunity for Mexico, published in February of this year, concludes that Mexico would benefit more from investment in these methods than by developing its deepwater or unconventional oil.
Rangel explains that the majority of global oil supply does not come from new discoveries, but from existing reserves and additional recovery, which is what IOR-EOR focuses on. Initial estimates of the volume of oil in a field and its production capabilities are erroneous, and only as the area is developed do the approximations near reality. So far, the efforts undertaken by Mexico in this area are not in line with the potential. The commissioner suggests that the application of recovery methods should no longer be considered a chronological matter, and that IOR-EOR methods be included in field developments from the start. Given the fact that 80% of Mexico’s production comes from fields which have reached their production peak, known as mature fields, this might be an option worth considering.
To highlight the relevance of using IOR-EOR methods from the beginning of production onwards, Rangel turns to four real-world instances, including the case of Prudhoe Bay in Alaska, where EOR allowed for an additional recovery factor of 52%. In the field’s 31 years of production, the method contributed to 100% of the recovered oil.
When it comes to the efficiency of IOR-EOR in comparison to deepwater or unconventional oil production, Rangel highlights a very relevant fact; it is undeniable that the oil industry cannot infinitely guarantee new discoveries.
Rangel begins his analysis by explaining that “the volume of new discoveries, excluding the Cantarell and KMZ super-giant fields, is inferior to the existing volumes that can benefit from IOR-EOR”. This finding is based on an analysis of offshore exploratory activities in the US-side of the Gulf of Mexico. Because it has been proven that both sides of the Gulf are geologically similar, the analogy can give us an idea of the magnitude of expected discoveries on our side. On average, a mere 20-30% of deepwater exploratory activity is successful, meaning the country would have to drill over 1,000 wells in hopes of incorporating about 250 of them in the country’s 1P reserves. Only at this level would the investment be justified, but given the cost of deepwater drilling in the current environment, this investment would be substantially large and much greater than the one required for adoption of the suggested IOR-EOR methods. In simplified words, IOR-EOR projects should be favored because they entail less geological risk. Indeed, the volumes to recover have already been discovered.
Rangel also argues that IOR-EOR methods are more worthwhile compared to the production of unconventional hydrocarbon reservoirs due the intensity of resources required for the latter, be it capital, supply administration, and human resources. The development of Mexico’s unconventional resources would imply the drilling of thousands of wells so that in a few decades we may reach production levels comparable to countries such as the US, Argentina, or Canada. This undertaking would entail unprecedented amounts of infrastructure, and would have to be set up in record time for projects to be profitable. Recently, another reason has come to support the favoring of IOR-EOR over the development of unconventional resources. Currently, the fifth phase of Round One, known as the unconventional phase, has been frozen as the low oil prices have rendered it unattractive from a financial perspective. Considering the fact that this phase might not take place, IOR-EOR methods could contribute in increasing the country’s production.
With this in mind, the commissioner emphasizes that even though EOR projects are costlier, they should nonetheless be considered in any project portfolio. This means that the most competitive developments among IOR-EOR projects should find an adequate place in the operator’s activity. As time goes by and the technology behind IOR-EOR is improved, these methods will allow for the retrieval of increasing volumes of oil and gas. It is estimated that the current technological and economic situation has left 224.3 billion discovered boe unproduced in Mexico. If only 5% of this volume could be produced, which Rangel qualifies as an achievable goal based on global cases, this would supply over 10 billion boe, a figure superior to our 9.8 billion boe 1P reserves. If these unproduced reserves were tapped over the next 30 years, the country would benefit from an additional 1 million b/d.
The CNH commissioner explains that the success of these methods is contingent on the public policies established around them. Just like Norway and the UK have done, Mexico must put in place IOR-EOR regulations, governmental institutions dedicated to increasing recovery factors, and fiscal incentives for these activities.
Looking to the international arena, Rangel seems to have found a tangible solution to Mexico’s declining oil production. The effectiveness of this solution, however, will depend on the Government’s willingness and ability to apply it.
The good news is that the authorities are already taking steps in the right direction. In March, Lourdes Melgar, Undersecretary of Hydrocarbons at Ministry of Energy, said that one of the objectives of Round One L-03 was to restart operations on wells that have been closed for a long time, as these hold resources that can now be produced thanks to modern technology, such as enhanced recovery methods.