1. Scientific and Engineering Approaches to Oil and Gas Exploration and Production
Dean Malouta, Manager of Technology Shell E&P Americas Region
Academy of Medicine,
Engineering and Science Conference
January 6-7, 2005
Dallas, Texas

2. Oil and Gas Dependency
Despite Government and Industry efforts, Oil and Gas will continue to be the main providers of energy for Transportation, heating and cooling, well into the 21st century.
Advances in Seismic Imaging, Low Cost Drilling Technology and Low Cost Production Capability are required to continue to meet our energy needs.
Energy Companies must invest in alternative Energy Research for their own and the nation’s energy viability

3. 20 year OIL Forecasts by the US Department of Energy:
Category
Annual Average
MMBOPD
2025 Expected Average MMBOPD
% Change from Today
US Oil Demand
20.45
27.93
+37%
Mid East Imports
11.78
19.11
From 58% to 68%
Opec Production 31 55
+80%
Non-Opec Production 49 65
+32%
US Oil Production
5.7
4.73
-1%

4. 20 year GAS Forecasts by the US Department of Energy:
Category
Annual Average
TCF
2025 Expected Average
% Change from Today
US Natural Gas Demand
21.94
31.47
+43%
Alaska Shipments
0.4
2.2
+450%
LNG Imports
6.4
+1600%
Natural Gas from Canada cannot keep pace with demand.
China will increase their demand for Canadian Gas.
New Alaska Gas Pipeline expected by 2016.
Coal will remain the primary source for electricity through 2025.
No new Nuclear Plants will be built by

5. 20 year Drilling Forecasts by the US Department of Energy:
Category
November 2003 Count
November 2004 Count
% Change
TX Rig Count
473
539
+14%
Original Permits
894
1177
+31%
TX Oil Completions
139
291
+109%
TX Gas Completions
490
677
+38%
TX Wells Drilled
691
1063
+53%
Through an Environmental Protection Agency (EPA) grant, the RRC has created the Brownfields Response Program to identify sites to promote voluntary cleanup by funding site assessments at little to no cost.
The EPA and the RRC are making a commitment to revitalize abandoned oil and gas properties by mitigating contamination and health risks and restoring the economic vitality to underutilized areas.

6. Historical Drilling Activity, US and Texas

8. Developing & Implementing New Technology
In order for any Oil and Gas Technology Innovation and Deployment to be successful, it must satisfy 3 important factors:
1) Increase Production
2) Help Replace Reserves
3) Reduce Costs allowing for additional
exploration and development
New Energy Source R&D must satisfy a positive
Net Present Value Return on Investment

9. Key To Success: Applying New Technology
Profitable growth in onshore gas will be driven by application of technology and operational excellence skills
Focus Areas
Key Technologies
Drilling
Driving a step change in cost and cycle time performance
Efficient development processes (Lift, facilities)
Under-balanced drilling
Horizontal UB drilling
Casing Drilling
Completion
Maximize productivity/recovery through mastery of design and diagnostics
Fracturing - Job design - Coiled tubing
Diagnostics:
Microseismics
fiber optic temperature surveys
Reservoir Characterization
Reduce subsurface uncertainty
Seismic interpretation: - Azimuthal processing to identify natural fractures - AVO for fractures, stratigraphy, and gas saturation
Petrophysical calibration/advances to better characterize porosity, perm

10. Cost Impact of Well Design Evolution
1989
2003
Cost Impact of Well Design Evolution
Conventional
Uneconomic
$9MM
well
w/ 1989
design
complexity increasing
smaller reserve targets
UB DWC w/
advancements
Conventional
$4.1 MM
well
Economic
$3.5MM
well
OBM
PDC Bits
Frac optimization
Commingling
Tubingless
HPCT
Composite Plugs
LC Prevention
UB DWC
The typical well drilled and completed in 1989, without significant pressure depletion, cost about $4.1MM ($1989). If you add extreme depletion intermixed with virgin pressure and drill the well with 1989 techniques the well would require three additional drilling liners and cost $9MM (ignoring inflation). However, by continually innovating and improving South Texas well designs and practices the same well now costs $3.5MM (2004$). Very few South Texas wells could be justified today without these improvements.
The advancements:
Oil based mud and PDC bit technology reduce drilling time from 60 days to 40 days.
Frac modeling and optimization (BTC) allow reduced gel loading, fit for purpose designs.
Commingling eliminates future rig recompletions, increases initial rate and reduces required well bore life.
Tubingless design reduces well cost by 15%.
Composite plugs speed the multi-staged frac completion process.
High Pressure Coiled Tubing (developed by Shell and Schlumberger in South Texas) replaces snubbing units.
Lost circulation prevention techniques (mud LCM pretreatments and squeezes) allow overbalances as high as 6000 psi to be handled, eliminating a drilling liner.
Under balanced drilling with casing allows higher overbalances (6-10,000 psi) to be handled so another liner can be eliminated.

11. Design Evolution Example –McAllen “B” Lease
Days - Spud to Rig Release
Design Evolution Example –McAllen “B” Lease
120
First
significant
depletion
100
Extreme
depletion 80 60 40 20
Conventional
w/ Commingling
Conventional
Tubingless
13-3/8”
9-5/8”
7-5/8”
5-1/2”
UB DWC
10-3/4”
7-5/8”
5-1/2”
3-1/2”
This plot shows the drilling times at the McAllen “B” Lease over the past 40 years. The “B” lease was originally one of the easiest places to drill Vicksburg wells in South Texas. Since discovery, wells could be drilled to 14,500’ without a drilling liner. A continuous drilling program starting in 1989 showed a classic learning curve until the first depletion was encountered. In 2000, an infill drilling program began and significant depletion was encountered in every well and 1-2 drilling liners were required. In 2003, the infill wells were drilled using under balanced drilling with casing and the liners were eliminated. In 2004, day wells are anticipated.
13-3/8”
13-3/8”
9-5/8”
9-5/8”
14,500’ TD
3-1/2” x
2-7/8” 5” 5”

12. Shell - South Texas Industy Leader
2002 Ziff Energy Study – Drilling Deep High Pressure Wells with Depletion
Shell participated in a third-party drilling bench-marking study with twelve other South Texas operators. This graph shows the comparison of deep wells drilled in depleted sands, Shell’s typical well. The red line shows the composite of all the best intervals together. The blue lines are the Shell wells, clearly demonstrating “best in class” performance. This study was done in 2002 and does not reflect the additional improvements due to under balanced drilling with casing. The composite performance technical limit (red line) is now being approached on a regular basis.
Study participants:
Chevron-Texaco, Conoco, Dominion, EEX, El Paso, Kerr-McGee, Newfield, Phillips, Pioneer, Shell, TFE, TransTexas
Shell wells
Days

13. Sidetrack/Deepening DWC
Slim-hole Re-entry program
underway since 1994
Slimhole opportunities not attempted
by competitors in South Texas
Getting slimmer
in 2004 5”
Under balanced
Sidetrack - DWC
2 7/8” 5”
Convert to
Tubingless
2 7/8”
Ultra-Slimhole 2 1/16”
Sidetracks from 3 ½”
Tubingless wells
3 ½”
2 1/16” 5”
Underbalanced
Deepening DWC
2 7/8”
Under balanced
Sidetrack/Deepening DWC
Casing damage is a common problem for all South Texas operators. Since 1994, Shell’s slimhole re-entry program has been underway on the conventional wells (with 5” and 5 ½” casing) drilled prior to Slimhole operations allow casing problems to be repaired, lost reserves to be recovered and restimulated, extending wellbore life. In many cases it allows for new reserves to be developed via deepening or testing previously by-passed zones. These jobs are generally half the cost of a new well so smaller opportunities are profitable. These opportunities are not attempted or recognized by our competitors in South Texas.
2 7/8” 5”

14. Technology Development
High Pressure & Temperature Materials & Measurement Tools
Advanced, Quantitative Seismic Imaging
Unconventional (Heavy, degraded, acidic) Hydrocarbon Development: Crude Upgrading
Tight Gas Completions
Artificial Lift
Under Balanced Drilling
Cheap Wells and Facilities
Pore Pressure Prediction
Expandable Casings and Liners
Hydrogen
Solar and other renewables

15. Typical seismic section showing the Vicksburg at Javelina Field
Faults – N/S striking, normal, Dipping basinward, small antithetic faults

16. Sustainable Development
Health, Safety and Environmental Protection
our # 1 concern in all operations, onshore and offshore.
Government R&D Tax Credits
allow us to pursue lines of research otherwise unfeasible.
hydrogen, solar, renewables
Severance Tax Breaks:
tax relief for life of well for producing all reservoirs under 1 mDarcy;
allow marginally economic wells to be brought on stream
Zero Emissions Permitting
helps sustain the environment
After Flowbacks After Fracs:
Capture gas generated in Frac jobs (no release to atmosphere) and sell it: Mcf/well per frac job
Land Fill Farming:
Take cuttings to a landfill site, add microbial degenerators and water, recycle as clean fill.