pc nl drilling through salt

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Technical newsletter May 2013

This drawing shows the geological profile through the Northwestern Basin ofGermany, with some salt domes in blue and the oil and gas reservoirs in brown.

Source: Franz Kockel et al. (1996) - Geotektonischer Atlas von NVV - D eutschland Bundesanstalt

fr Geowissenschalten und Rohstoffe, Hannover.

In recent years, an increasing number of oil and gas projects involving drilling through salt have beenpresented by different exploration companies. It is important for underwriters, lawyers, regulators, financiersand engineers to have a clear understanding of the risks involved in order to assess their real exposure.

Most people in the oil production business believe the era of easy oil discovery is over, and indeed

many of todays oil & gas reservoirs are to be found in increasingly difficult locations with complexgeologies. These locations include large oil & gas reservoirs associated with salt structures:the impermeable nature of salt means that it can serve as a hydrocarbon trap.

The (Re)Insurance sector still views these projects as extremely risky, but our objective is to includethese new prospects in our current portfolios as carefully as possible. SCOR Global P&Cs BusinessSolutions division has already dealt with a few subsalt drilling projects.

Our task is to understand the risk exposure and, in conjunction with our clients - the Insureds - , determineadequate solutions. Communication, and working closely with our clients, are the keys to success.

This technical newsletter is a summary of a paper published by SCOR Global P&C at the request of theJoint Rig Committee of Lloyds, an association representing the interests of insurers writing offshore

energy risks in the London market.

Drilling through salt

Risks associated with drilling through salt

Oil and Gas

Salt

0

[m]

2000

4000

5000

Until 1980, it was common practice forexplorationists not to seek hydrocarbonsbelow salt, as they believed that qualityreservoirs did not exist below salt layers.At that time, the imaging of salt bodies wasunsatisfactory.In recent years, companies have mademajor efforts to enhance the understan-

ding of these salt bodies. Thus, in less thantwo decades, salt has morphed from foeto friend.Drilling contractors are still looking forimprovements in drilling performance, inorder to lower the risks involved. Progressin this area is certain to continue andwill result in significant new tools andtechniques. For the time being, however,drilling through salt remains a relativelynew practice, and is challenging and risky.

Salt structures and traps

Salt is one of the most effective agentsin nature for trapping oil and gas: as a

ductile material, it can move and deformsurrounding sediments, creating traps. Saltis also impermeable to hydrocarbons andacts as a seal.

A salt accumulation is formed throughthe evaporation of seawater, and canreach thousands of feet in thickness. Over

time, the layer is covered with depositedsediment, becoming buried under anincreasingly large overburden.


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Flow of salt and Halokinesis

Salt is in many aspects unlike othersedimentary rocks: it is able to form at ageologically impressive sedimentation rateand does not compact or hardly compacts

with depth. Most important, however, isits ability to deform plastically.

If the overlying sediments offer little resis-tance, the salt rises, creating characteristicdomes, pillows and wedges that truncateupturned sedimentary layers. This processof flowing and rising salt halokinesis which may be observed in the Gulf ofMexico for example, is illustrated on the left.

Problems encountered whendrilling through salt

As explained earlier, salt movement gene-rates a wide variety of traps; therefore the

industry has been repeatedly successful indiscovering large hydrocarbon accumula-tions in these basins.

But salt diapirs have always been treatedcautiously by operating companiesbecause of their geological complexity,which creates an unusually high degree ofuncertainty in terms of predicting lithologyand pressure. This makes the planning anddrilling of wells difficult and potentiallyexpensive.The real problem encountered when drillingthrough salt is linked to the properties of salt.Indeed the plastic flow under subsurfacetemperatures and pressures, along withlow permeability (which make salt bodieseffective hydrocarbon traps) presentunique challenges for drilling operations.

During the life of a well, salt movementcan displace wellbore tubulars, possiblycausing failure or restricted access, asillustrated above.

Salt

Caprock

Shear zone

Salt

flow

150$F

200$F

Potentialoverpressure

Unconsolidated

zone

Salt drilling is technically challengingsays Riaz Israel, Schlumberger seniordrilling engineer, calling it unforgivingto drill through.

Adequate well design

Drilling across salt zones is subjected totension, compression, burst and loads,which must be included in well designcalculations.

It is also very important to proposesolutions to prevent well collapse and toincrease the strength of the protective pipe.

Wellbore displacement

Challenges of subsalt imaging

But the main challenge is really to imagethrough the salt structure, which is difficultdue to the plastic properties of salt, andalso to the three dimensional structure of

the salt dome. The top part of a salt struc-ture almost always overshadows the traps,essentially putting them in a shadowzone, particularly beneath salt flanks.

The salt acts as a barrier and scatters theseismic waves used to build an image ofthe subsurface.For example, an ambiguous positioning ofthe salt event can lead to different deci-

sions concerning the well trajectory. Thepicture on the left, taken in the centralGulf of Mexico, illustrates the importanceof imaging to proper well placement.

At present, the oil majors deploy a numberof advanced techniques, which are avai-lable throughout the chain of geophysicsexpertise. These new technologies, alongwith their associated challenges, will bediscussed in the following chapter.

ReactiveExtension creates space

Fan ofnormalfaults

ActiveDiapir* creates space

Thinning,arching

Radial orsubparallelfaults

Passive - No space problem

Process of flowing and rising salt

* Diapir is a type of intrusion in which a more mobile andductily deformable material is forced into brittle overlyingrock.



Technology and challenges involved in salt structure exploration

Industry seems to be taking a step back and reconsidering how to explore beneath complex salt basins. Advances in imaging anddrilling will really change the way in which explorationists view salt bodies. Seen as impenetrable barriers, many structures are nowproving to be rich reserves. And this new vision of subsalt is impacting Exploration & Production (E&P) decisions, from well planning

and drilling to field delineation and development.

Innovative solutions to the proper imaging of salt bodies

To maintain the integrity of the boreholes,drilling fluid must minimize hole closure.

In addition to this, drilling through saltis fast, but getting out of the salt andinto the section below can be tricky dueto pressure issues. Drillers have to beextremely cautious: drilling through saltsections requires that the particular pro-perties of salt, its creep behavior and highsolubility, be recognized and incorporatedin the drilling plan.

Not very long ago, operators and contrac-tors considered drilling through saltsections to be an extremely high-riskoperation.Nowadays, however, drilling through saltcan be accomplished safely by applying

knowledge of stresses and material beha-vior, using simple models that capture thecritical aspects of borehole processes suchas creep, heat flux, temperature sensitivity,and so on.

Seismic imaging principle

Seismic imaging is the first tool used toguide subsalt exploration and development,and is a three-step process:1. Data Acquisition - the gathering of

seismic data in a geophysical survey.2. Data Processing -a mathematical step

in which seismic data is transformedinto a 2D or 3D image of the subsurfaceby means of highly complex algorithmsand enormous computing power.

3. Seismic Interpretation -the trans-lation of the seismic image into

geological terms by geologists andgeophysicists.

All subsurface disciplines work in anintegrated way (geologists, geomechanicalengineers, petrophysicists, reservoirengineers, etc.) in order to build anadequate model mapping the complexgeometries of salt bodies, but the role ofthe geophysicist is central to the pre-drillplanning of these directional wells.

Challenges of subsalt imaging

There are different reasons for poorsubsalt image quality and shadow zones:poor illumination, wrong velocity model,

coherent noise interference, and imagingalgorithm.

The reasons for poor subsalt imaging mayinclude inappropriate acquisition param-eters and a bad seismic survey, which iswhy the geophysical contractor must bechosen carefully.If the salt causes distortion and scatteringof the wavefield, the result is an imagedegradation that severely hinders the inter-preters ability to develop a complete andcoherent understanding of the geology.

It is vital to resolve these problems inorder to provide the best possible imagesof the subsurface, but this is challenging

under considerable time constraints.Geologists also have a big role to play insubsalt imaging, which can be extremelysensitive to variations in salt interpretation.A very small error in salt geometry by thegeologists can have a major impact on theoutcome of the picture; the geologicalscenario has to fit the salt tectonics frame-work of the salt body.

The interaction between the varioussubsurface disciplines is well illustratedhere: the top of salt feature in yellow hasbeen interpreted on a seismic workstation,a panel of seismic data is shown as wellas the well locations and deviated welltrajectories.

Over the past five years, a great dealof effort has been focused on imagingbeneath complex salt bodies, imagingsubsalt structures under complex over-burdens being the most difficult task inseismic exploration.

Due to the forces and movements illus-trated in the seismic picture below, the

stresses around and in salt structures canbe high and troublesome to stabilize.Therefore, if borehole fluid pressure is lower

than salt strength, stress relaxation maysignificantly reduce openhole diameters.

In some cases, relaxation causes boreholerestrictions even before drilling and com-pletion operations are finished.



Subsalt overpressure

Subsalt overpressure may exist in someplaces, and extensive rubble or shearedzones are common underneath salttongues or adjacent to diapirs.

Drilling into one of these is a commoncause of a well blowout.

Thanks to improved subsalt images, it isnowadays possible to locate hazardousoverpressure zones, which are indicatedon the previous map. Conducting suchstudies should avoid most of problems ofthis nature during planning and drilling.

Brazil: the major player in subsalt developments

overpressure zone

well

2450

Slow velocity Fast velocity

3200

The government estimates that reservesat Sugar Loaf could be even larger thanthose of Tupi, at around 33bn boe, andthat the Jupiter field could have similardimensions to Tupi. Other discoveries inthe area include Parati, Bem te-vi, Carioca,Iara, Tupi Sul and Iati.The President of the Agncia Nacionalde Petrleo (ANP, the industry regulatoryagency) puts total potential reserves in theSantos Basin at 80bn boe. If the new disco-veries are found to be commercially viable,Brazil could become one of the world's majoroil-producing and exporting countries.

When considering the risks linked todrilling through salt, the case study ofBrazil is indispensable.Indeed, in the past two years Brazil hasdiscovered the largest oil deposits in thecountry's history and the worlds mostpromising fields since the discoveriesmade in Kashagan, Kazakhstan in 2000.This has put Brazil well on its way to beco-ming a major producer in the future, buta number of technological and financialhurdles will have to be overcome first.

The finds are located in the Santos oilBasin, 300 km from the coast of Rio deJaneiro in south- eastern Brazil.

Potential reserves are estimated at 5-8bnbarrels of oil equivalent (boe), which wouldmake it the largest ever deep-water oilfielddiscovery. Partner company British Gas ismore optimistic, estimating that the fieldcould contain 12-13bn boe.

The Tupi discovery was followed by otherlarge finds, including Sugar Loaf, to thesouth-west of Tupi, in December 2007, andthe Jupiter natural-gas field, located eastof Tupi, in January 2008. The three fieldsconstitute the largest hydrocarbon discover-ies in the cluster area of the Santos Basin.

The pre-salt province, from the Santossedimentary basin in the south, extendingnorth through the Campos basin to reachthe Espirito Santo basin, covers an area ofapproximately 149,000 km2.The first discovery the giant Tupi field was made in November 2007.

Santos BasinPre-Salt ClusterBlocks Consortium

BMS-8

BMS-9

BMS-10

BMS-11

BMS-21

BMS-22

BMS-24

BR (66%) , SH (20%) e PTG (14%)

BR (45%) , BG (30%) e RPS (25%)

BR (65%) , BG (25%) e PAX (10%)

BR (65%) , BG (25%) e PTG (10%)

BR (80%) , PTG (20%)

EXX (40%) , HES (40%) e BR (20%)

BR (80%) , PTG (20%)

Shore Distance = 400 kmTotal Area = 15.000 km2

Blocks onsortium

BM 8

BM 9

BM 1

BM 11

BM 21

BM 2

BM 2

BR(66%) , SH(20%) e PTG (14%)

BR (45%) , BG (30%) e RPS (25%)

BR (65%) , BG (25%) e PAX (10%)

BR (65%) , BG (25%) e PTG (10%)

BR(80%) , PT (20%)

EXX (40%) , HES (40%) e BR (20%)

BR(80%) , PT (20%)

Shore Distanc = 400kmTotal Area = 15.000km

The Offshore Brazil Seismic image below reveals the subsalt structure around this Tupi discovery.



Tough conditions and high cost

The reserves are located in the so-calledpre-salt area (below the thick salt layerand more than 4km below the sea bed,under a series of layers of rock and salt).

Until now, Brazils reserves have beenfound in post-salt formations - above thesalt layer.The depth of the oil reservoirs is notthe main challenge; more problems areposed by the depth and thickness of thesalt formation. Unlike drilling throughrock, which can be difficult owing to itsthickness but once drilled remains stable, itis tough to maintain the dimensions of thehole after drilling through salt. Anotherchallenge is the temperature shock of theoil as it travels up to the surface.

The technology needed and the sub-sequent development and maintenance

of the reservoirs will be expensive. Thedevelopment cost of each subsalt wellis estimated at US$100-150m, and Tupialone could require as many as 200wells. Developing the entire Tupi areacould cost around US$600bn over thelife of the wells. Unexpected geologicalor operational issues such as longerdrilling times and increases in the rentalcosts of rigs could further raise costs.The availability of deepwater rigs couldalso delay Brazil's oil plans, as globallythese are in short supply.

Conclusion

Brazils crude oil production could rise tomore than 5 m barrels per day (mbpd).Future potential, however, is greater sincethe assumed future additions to reservesare conservative in comparison with the100-150 billions bbls expected fromthe subsalt play. With discoveries beingmade above the salt and also onshore inthis vast country, Brazils future crude oilproduction could be even greater.

Developing these fields will lead to anoticeable increase in the production ofnatural gas liquids and condensates. A verypositive oil production outlook for Brazil is,therefore, well-founded.

Subsalt projects: current policies, forecasting, trends and uncertainties

The sedimentary basins of North WesternEurope are classic areas of salt tectonics,especially the Dutch part of the CentralEuropean Basin, but a large part of therest of the worlds hydrocarbon reservesare also associated with evaporitic depo-

sits, for example the Caspian Sea, the Gulfof Mexico, offshore Brazil and the basinsof the Middle East.

These may involve drilling through asmuch as 4900-8200 m of salt to depthsof 16,400 to 29,500 feet.Successful and efficient sub-salt drillingwill play an increasingly large role in termsof achieving many of the areas deep-

water drilling objectives.

To meet this challenge, the ability to direc-tionally drill through salt and to understandand manage the issues this introduces willbe a key factor for deep-water operators.

Many of the exploration successes overthe last decade having been salt-related,insurers will be working increasingly onsubsalt projects over the next few years.

As risk carriers, insurers and reinsurers areessential to the global economy and areimportant players in its evolution.

This explains why they are actively involvedin supporting these new projects.

Despite the fact that geophysicists havedeveloped new methods to improvevisualization through salt, knowledge ofthe existence of hydrocarbons below salt isa sufficient reason to start drilling. Indeedsalt drilling is still a relatively new practiceand presents challenges that are still notfully understood.Therefore, underwriters need to ensurethat studies have been carefully conducted,in order to avoid blow-outs and othercatastrophes.Technical knowledge and offshore under-

writing must be closely linked, and opencommunication with the client is the keyto a successful partnership.

60$

30$

0$

30$

DiscIntr

a-Rift

Topofthe

Rift

Base of theSalt

Top of theSalt

Top of the Albian Top of the KSeabed

Basement

Seismic Line / Geological Section -Santos Basin

Distribution of offshore salt sheets


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As was the case for renewable energy andoptical fibres in the 1980s and 1990s, drill-ing through salt, as a new industry, raisesa number of challenges for insurers andreinsurers. These include: the reduction of capital costs and mini-mization of time before initial production; prototype and new technologies,fabrication and installation withoutadequate testing or quality control; lack of information concerning the detailedengineering or the geological environment;

lack of expertise and experience ofgeophysical or drilling contractors andconfrontational culture; cost savings or cuttings leading tominimal safety and equipment reliability.

Moreover, insurers and reinsurers aregenerally involved at a late stage in theprojects, and have no impact at all ontechnical decisions or the decisions madeby contractors. The transparency of theinformation available is not sufficient to

assess the quality of a project.These drilling through salt projects areusually included in operational packagesand it is sometimes difficult to isolatethese specific risks. Underwriters have tobe cautious and differentiate the types ofrisk involved.However, the dispersion of these riskydrilling projects among some traditionalrisks allows the (Re)Insurance industry tomutualize these risks on a portfolio basis.

Drilling through salt: preparing for the underwriting challenges

In the decades ahead, the world willneed to expand energy supplies in a safe,secure, affordable and environmentallyresponsible way. The scale of the challengeis huge and requires an integrated set ofeconomic solutions.For most of the Exploration and Productioncompanies (E&P), the low hanging fruithas gone, meaning that we now have toinvestigate more complex areas in order toextract oil and gas.In the never-ending global search for oiland gas, pre-salt hydrocarbon basins(oil and gas lying below more than2000m-deep layers of salt) are becomingincreasingly important, because suchbasins host massive reserves.For example, as mentioned previously,worldwide attention has recently focusedon the impressive volumes of oil andgas discovered at a depth of about6 kilometers off the coast of Brazil.Brazils crude oil production has grownby more than 1 mbpd over the last tenyears and the new discoveries will lead to

even more impressive production growth.Brazil could soon be one of the major oilproducers.Frequent contacts with major clientsconfirm the technical evolution of explo-ration, and the trend of the offshoreindustry towards deeper waters.From an insurance point of view, thepurpose of this document is to explainthe risks associated with drilling throughsalt projects, along with the challengesencountered by insurers and reinsurerswhen dealing with these.It is essential for insurers and reinsurersto work closely with clients and to have athorough understanding of the challengespresented by this offshore environment.This will help them to address some vitaland very specific issues with the clientbefore accepting any risks. These include:

Obtaining all information relating toseismic surveys shot in the area, the roleof seismic imaging being essential in theplanning of these particular wells;

The age of the various seismic surveys;

The geophysical contractor that perfor-med the seismic surveys;

When the geological model was created,and whether or not it has been updatedsince then;

Which drilling contractor has beenhired, and whether or not they have allthe required certifications for an opera-tional driller;

What contingency plan would be appliedin case of a Blow-out, etc.

SCOR Global P&Cs offshore team,consisting of upstream engineers, has anexcellent understanding of the technicalchallenges faced by operators. Thanksto this understanding and experience,SCOR Global P&C has been a major inter-national offshore player since the earlydays of the SCOR Group.

Caroline HaquetUnderwriter Offshore & ShipbuildingSCOR Global P&C

AcknowledgementsI would particularly like to thank Jean Luc Mari, Jean-Pierre Roy, Pierre-Yves Dequirez, Isabelle Rey-Fabret and Jean-Pierre Gilot fromIFP Institute, Stphane Berneau from CGG Veritas, Martin de Keijzer, Abdullah Hamood, Ruud van Boom and Michiel van Dongenfrom Shell, and Alice Bastien and Floriane Bi from Total, for their kind assistance and efficient collaboration.

SCOR Global P&C

5, avenue Klber - 75795 Paris Cedex 16 - France

Editor:Dominique DionnetTel.: +33 (0)1 58 44 72 62 - Fax: +33 (0)1 58 44 85 22 - [email protected]

ISSN :1967-2136

No part of this publication may be reproduced in any form without the prior permission of the publisher.Design and conception: SCOR Global P&C, Strategy & Development/ (05/2013).

pc nl drilling through salt

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