SHALE OIL:
Exploration and
Development
Presented By: Justin Brady, Laura Kerr,
Mike Potts
Senior Capstone Project
Spring 2006
Current Energy Crisis
• World’s main source of energy: Petroleum
• Demand exceeding supply
– April 17, 2006: Oil reaches
$70/barrel
• Opportunity to develop alternate energy sources
– Large economic incentive
Why Shale Oil?
• Currently, United Arab Emirates hold
50% of world’s known oil reserves
How much does the
US hold?
2%
How many reserves would
be added from developing
oil shale?
2 TRILLION BARRELS
•Result: US takes over as leader in the world
in oil reserves.
Outline
• Introduction to Shale Oil
• Project Statement
• Subsurface Operations
– Reservoir Temperature Profiles
– Heating
– Freeze Walls
– Reservoir Composition Analysis
• Surface Facilities
– Oil/Gas Processing
– Power Plant
• Pipelines to Market
• Production Schedule
• Economics and Risk
Shale Oil: Definition
• Sedimentary rock
with a high organic
content
– Organic matter is
known as kerogen
• Kerogen:
– MW
avg.
=3000
– Approximate formula
C
200
H
300
SN
5
O
11
1
1. Feng H.Y. Rates Of Pyrolysis Of Colorado shale oil. p. 732. American Institute Of Chemical Engineers Journal . Vol. 31 No. 5. 1985.
Shale Oil: History in the US
• Office of Naval
Petroleum and Shale
Oil Reserves formed
in 1912
• First Demonstration
mine opened outside
of Rifle, Colorado
just after World War
II
Shale Oil: History in the US
• TOSCO opened an experimental mine and
production plant near Parachute, Colorado in
1960’s
• Exxon opens Colony II project outside of
Parachute, Colorado in 1980
– Colony Project is closed in May of 1982
– Nearly 2,200 people unemployed
– Loss of more than $900 million.
Project Statement
• Determine which method of production of
shale oil is the most feasible.
• Analyze production process to determine
– Subsurface designs
– Reservoir characteristics
– Surface processing facilities
– Scheduling of project
– Pipelines
• Perform an economic analysis on project.
Shale Oil Production Methods
Above Ground
Retorting
• Mining of ore
• Well known technology
• Large environmental
impact
– Popcorn effect
– Large open mines
– Emissions
In-Situ
Conversion
• Underground
conversion
• Research in progress
• Lower environmental
impact
• Not commercially proven
In-Situ Conversion
• Currently being explored by Shell Oil
with the Mahogany Project.
• Entails the heating of kerogen in the
ground and extracting the produced
hydrocarbons for further processing.
In-Situ Process Overview
• Step 1: Heating
– Conversion of kerogen
to oil and gas
• Step 2: Freeze Wall
Construction and Water
Removal
– Impermeable wall
around production site
– Prevents large
environmental impact
1. Mut, Stephen. The Potential of Oil Shale. 8/20/05
In-Situ Process Overview
• Step 3: Production
– Products from kerogen
conversion
• Step 4: Processing and
Transportation
– Oil and gas separation
– Pipelines to market
Schedule Table
site preparation: drilling wells, freeze wall formation, water removal
heating only
Production: refrigeration and heating continues
water injection
site reclamation
Reservoir Temperature Profile
• Unsteady state 1D
temperature profile
• Profile created for
– Heater to heater 60
feet apart (25
heaters/acre)
1
– Heat given off by
reaction accounted
for
– Initial Reservoir
temperature 150
o
F
1. Bartis et. al. Oil Shale Development in the United States. Rand Santa Monica, California: 2005 p. 50
.
Reservoir Temperature Profile
• Heat balance on reservoir
q
z
T
k
t
T
C
p
−
∂
∂
=
∂
∂
2
2
ρ
1. Guerin, Gilles 2000. Acoustic and Thermal Characterization of Oil Migration, Gas Hydrates Formation and Silica Diagenesis, PhD. Thesis,
Columbia University
• Concentration due to cracking
k
RT
E
k
CAe
dt
dC
a
)(
−
−=
Accumulation Conduction Generation
Reservoir Temperature Profile
• Approximation Equation
p
rxk
RT
E
tititititti
C
HCAte
T
x
t
TT
x
t
TT
a
ρ
αα
)(
|
2
)||(||
)(
2
11
2
∆−
−
∆
∆
−+
∆
∆
=−
−
−+∆+
Accounts for heat of
reaction due to
cracking of kerogen
Accounts for heat spreading
linearly away from each
heater into the reservoir
rock
Temperature at
certain time and
distance between
heaters
t
T
∂
∂
=
2
2
z
T
∂
∂
α
p
C
q
ρ
−
Reservoir Temperature Profile
Assumptions
• Thermal diffusivity assumed constant
• Models only include periods of time when no fluid
flow is occurring in reservoir
• Heaters assumed to be in a hexagonal pattern in the
earth
• Heat generation from reaction is calculated from
average kinetic values of kerogen cracking
• Heat lost to overburden by heaters not considered
Temperature vs. Reservoir Distance:
Heat of Reaction Included
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0
Distance (ft)
Temperature (F)
3.5yr 21 months 3 year Beginning of heating 10.5 months
Reservoir Temperature Profile
Takes 3.1 years to start production of the well in
the center of the heaters.
Temperature vs. Reservoir Distance
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0
Distance (ft)
Temperature (F)
3.5yr 21 months 3 year Beginning of heating 10.5 months
Reservoir Temperature Profile:
No Heat from Reaction
Takes 3.3 years to start production of the well in
the center of the heaters.
Reservoir Temperature Profile:
Heater to Freeze Wall
Temperature vs. Reservoir Distance:
Heater to Freeze Wall
0
200
400
600
800
1000
1200
1400
1600
0 10 20 30 40 50 60
Distance (ft)
Temperature (F)
0 hrs 10 months 24 months
48 months 72 Months 130 months
2D Reservoir Temperature
Profile
• Developed using
ANSYS
• Initial reservoir
temperature 150
o
F
• Freeze walls
included as
boundary condition.
30 ft 30 ft30 ft 30 ft
Production wellHeater
Shale Oil:
Subsurface Operations
• Drilling costs
• Refrigeration costs
• Pumping costs
• Heating costs
Drilling Costs
• Consists of wells for heaters and
producers
– 250 wells for heaters per 10 acre plot
– 80 producer wells
• Total well costs of $26.4 million.
– $80,000
2
per well.
2. Brown, Randy. Field Engineer XAE inc.
Freeze Wall Construction
• Constructed of
double wall pipes
placed 8 ft. apart
• Calcium chloride
brine at -10 degrees
F is circulated.
• Water in the soil
freezes creating an
impermeable
barrier.
*Soil freeze technologies
Freeze Wall: Duty & Costs
WQ K 10*0.5
6
=
waterfreezing
M*)(**
∆Η
initialfinalp
TTCMQ
z
T
kQ
∂
∂
−
=
Purchase cost for 5.0*10
6
KW of refrigeration
1
: $12.5 million
Operating Cost
2
: $3.2 million per day
1. Peters et al p.894 fig. B-7
2. Peters et al p.898 table B-1
During freezing:
During production:
KWQ 7.8
=
Pumping
• Ground water
trapped within
freeze wall
• Must be
removed to
prevent
contamination
Heaters
500 ft, Shale
2000 ft,
Overburden
Producing well
Ground water
Pumping Costs
• A pump is needed to remove water
from within the freeze wall.
– 2 barrels of water for every barrel of oil
6
– Pumps must handle 1.6 million gallons per
hour to remove the water in 2 weeks.
• Centrifugal pumps
• 80 pumps, $23,000 per pump
7
• $120,000 electricity needed per day
6. Bartis et. al. Oil Shale Development in the United States. p. 50. Rand Santa Monica, California: 2005
7. Peters et. al. Plant Design And Economics For Chemical Engineers. P. 516, Mcgraw-Hill: New York 2003.
Heating: Challenges
• Challenges
– Regulated at a constant temperature
– Must operate at high temperatures
– Must have a large power output.
Heating: Solution
Overburden
Shale
Heaters
Supporting
casing
•Electric heaters
lowered to the bottom
of well hole
•Extends the entire
length of the shale
layer
2000 ft
500 ft
Heating Element
•Chromel AA* heating
element
•68% nickel
•20% chromium
•8% iron
•Self regulating:
1500
o
F
*Trademark of Hoskins Manufacturing
2 Handbook of chemical engineers, p. 4-201 8th ed.
2
Heater Design
Heating
Element
Electrical
Insulator
Steel
Casing
6”
.5”
6”
10’
•Cylindrical design
•Electric heating
element suspended
in the center.
•Spaced from the
casing by electrical
insulators
Heater Design
Heating
Element
Ceramic
Insulator
Steel
Casing
.5”
6.625”
Heating Costs
Electrical
• 165 KW per heater
• Operating at 480 V AC
and 350 amps
• Electrical costs heating:
– $.08 per KW-hr
4
$80,000
per day total
Materials
• Steel Casing
– $10 per foot
• Heater element
– $20 per foot
• Porcelain insulator
– $14 each, 250 per
heater
• Total material cost:
$80,000 per heater
Reservoir Composition Study
• Heating process causes
cracking of kerogen.
• Estimation of composition
of products in reservoir
needed.
• A temperature profile is
necessary for composition
computation
• Ultimately, reservoir
characteristics will allow
design of processing
facilities.
Reservoir Composition Model
• Cracking process under
the earth
– Kerogen:
• MW
avg.
=3000
• Approximate formula
C
200
H
300
SN
5
O
11
• Modeled using
visbreaking model
• Using temperature
profile, predicts
concentrations of
hydrocarbons in
reservoir
Reaction depiction for thermal cracking
1
1. Castellanos, Julian. Visbreaking Yields. Encyclopedia of Chemical Processing and Design vol. 62. Marcel Dekker: New York. P411,
Composition Model
∑∑
−
=+=
∗−=
2
1
,
2
,
i
j
ji
n
ik
ikik
Si
KCsCsK
dt
dC
Example of hydrocarbon cracking
Reservoir Composition
Weight Fractions of Hydrocarbons During Heating
In Reservoir
0
0.2
0.4
0.6
0.8
1
C1-C5 C6-C10 C11-C15 C16-C20 C30-C40 C50-C60 C70-C280
Carbon amount in Hydrocarbons
Weight Fraction
700 F 800 F 900 F 1000 F 1100
Problems With Composition
Model
• Averaged K-Values must be used due to the
large amounts of data
• Parameters are fit to laboratory data that may
not be similar to reservoir
• Does not account for coking in reservoir
• Results are not close to reported results from
experimental site
Suggested Solution for
Composition Model
• Use a tool with a larger capacity than
excel
• Use a model specifically developed to
calculate products from kerogen
– Example: Braun and Burnham’s model of
decomposition of kerogen
Oil Processing Design
Specifications
Oil composition
1. No significant sulfur content
2. Carbon solid from cracking is
not produced
3. Heavy hydrocarbons are not
produced
4. TBP curve of a sample light
sweet crude oil is being used
currently.
• Update with compositional
model results
Production
1. 20 acres produced from one
facility
2. Water treatment will function ¼
of the time of the oil treatment
1. Bartis et. al. Oil Shale Development in the United
States. p. 50. Rand Santa Monica,
California: 2005
Oil Surface Facilities
Considerations
• Elevation changes
• High temperature fluid
• Piping will be above
ground
• Two different
transportation routes for
oil and gas
• Some gas will be used
for running electricity
plant
Experimental project site
Oil Processing Skeleton Model
Oil Processing
Water processing
Oil Processing Facilities
•Inlet temperature= 680
o
F
•Inlet pressure= 1000psia
Separates C
1
- C
5
and
from heavier products
Sent to Denver
refinery for sale
Water Processing Facilities
Pumps water back
Into well
•Inlet temperature = 680
o
F
•Inlet Pressure= 1000psia
To oil
processing
Processing Facilities
• Future options for gas treatment
– Create a gas plant on site
– Use ethane to make ethylene on site
– LPG to market with oil
– Burn gas production for power generation
Power Plant Options
Nuclear Power Plant
• Bad public opinion
• Low emissions
Gas Powered Plant
• Methane is priced high
• Producing methane on sight
Coal Powered Plant
• High emissions
• Coal supply needed
Power Plant
• Combined Cycle
– Capital Cost,
$500M
– Operating Cost,
$60,000/day
– Natural Gas
Required, 110M ft
3
– Electricity
Generated, 800
MW
– Efficiency, 57%
R.H. Kehlhofer, et al., Combined-Cycle Gas & Steam Turbine Power Plants
Gathering Pipelines
• Well to Header
– 4” Schedule 80,
Carbon Steel
– Oil & Gas
• Header to Main
Gathering Pipe
– 8” Schedule 80,
Carbon Steel
– Oil & Gas
• Main Gathering Pipe
to Processing Facility
– 20” Schedule 80,
Carbon Steel
– Oil & Gas
To further
collection
and
processing
Producing wells
surrounded by heaters
Header
Sell Pipelines
• Gas to/from Market
– 8” Schedule 80, Carbon
Steel
• Oil to Market
– 12” Schedule 80, Carbon
Steel
• Gas to Power Plant
– 16” Schedule 80, Carbon
Steel
Pipeline Costs
Pipe Description Contents D (in) Schedule Length (ft) $/foot Total Cost
1. From Well Oil & Gas 4 80 400000 10$ 4,000,000$
2. From 1 Acre Oil & Gas 8 80 100000 30$ 3,000,000$
3. From 10 Acres Oil & Gas 20 80 1000 100$ 100,000$
4. Crude Oil to Sell Oil 24 80 1188000 110$ 130,680,000$
5. Gas to sell Gas 8 80 1188000 30$ 35,640,000$
6. Gas to Power Plant Gas 10 80 10500 40$ 420,000$
1
1
2
3
5
6
4
Total Piping Cost= $173,840,000
Production Schedule
• Ten acre tracts
• 40,000 BPD per tract
• A new tract every year
Schedule Table
site preparation: drilling wells, freeze wall formation, water removal
heating only
Production: refrigeration and heating continues
water injection
site reclamation
Environmental Effects
• Location
– Colorado Rocky Mountains
– Lack of infrastructure
– Low population
– Natural habitats affected largely
• Ground Coverage
– Drilling cannot occur on slope
– Wells spaced 30-60 ft apart
– Large land clearings necessary
• Emissions
– Choice of power plant
– Processing on site
Crude Oil Price Forecast
Crude Oil Forecasted Prices
(Price per Barrel, $US 2004)
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
2000 2005 2010 2015 2020 2025 2030 2035
Year
Dollars
Most Likely
High
Low
Natural Gas Price Forecast
Natural Gas Forecasted Prices
(Price per Thousand Cubic Feet, $US 2004)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
2000 2005 2010 2015 2020 2025 2030 2035
Year
Dollars
Most Likely
High
Low
Pricing Estimations
• Includes
• Equipment costs
• Heating
• Cooling
• Power Plant
• Drilling
• Production taxes
• Operating costs
• Excludes
• Logistical costs
• Extensive Road
building
• Transporting materials
• Relocating employees
• Research costs
• Reclamation costs
Processing Equipment Costs
Component Basis of Estimation Cost
a. Heat Exchangers 5 @ $15,867 $80,000
b. Distillation D=3m, H=6m, 10 trays $87,000
c. Mixer #2 D=.508 $16,000
d. Mixer #1 D=.4572m $14,000
e. Flash #1 D=1m, H=10m $15,000
f. Pump .0544 m3/s, 6800 kPa $40,000
g. Pumps (piping) 2 w/ .151 m3/s, 1035 kPa $32,000
h. Heat Exchangers 3 w/ SA= 100 ft2 $3,600
i. Expander P=1932 kW $235,000
j. Expander #2
P=552 kW
$105,000
k. Compressor 5800 kW, centrifugal-rotary $1,100,000
$1,727,600Processing Equipment Costs
Extraction Equipment Costs
$541,067,000 Extraction Equipment Costs
$500,000,000.00
Combined Cycle,
$400/kWhd. Power Plant
$1,840,000.00
80, 1.6M gal/hr
water, 2 weeksc. Pump
$12,500,000.00800 KW capacityb. Refrigeration plant
$25,000,000.00
25/acre @
$100,000a. Heaters
Cost
Basis of
EstimationComponent
Total Capital Investment = $867 million
Component
Basis for Estimate
Cost Per Year
I. Manufacturing Cost
A. Direct Production Costs
1. Raw Materials
a. Cooling Water 178M lb/hr $0.08/1000kg $1,650,000
2. Operating Costs
a. Drilling Costs (contract) $22,400,000
b. Operating Labor $2,000,000
c. Refrigeration $0.68 per KW $196,000,000
$220,400,000
3. Direct Supervision and Clerical 15% of Operating Labor $300,000
3. Utilities (Power Plant)
a. Variable Operating Costs $86,500/day $31,572,500
b. Fixed Operating Costs $3.6M/year $3,600,000
4. Maintenance and Repair 7% of FCI $57,798,000
5. Operating Supplies 15% of Maintenance and Repair $8,670,000
6. Laboratory Charges 5% of Operating Labor $100,000
7. Patents not applicable $0
B. Fixed Charges
1. Capital Costs Straight Line Depreciation, 25 years $33,027,000
a. BLM Production Tax 12.5% of Gross $228,617,750
b. Insurance .7% of FCI $5,780,000
c. State Production Tax 1% of Gross $18,289,420
C. Overhead Costs 10% of the Total Product Cost $56,000,000
II. General Expenses
A. Administration Costs 20% of Operating labor and maintenance $11,960,000
Total Annual Cost
$677,800,000
Total
Annual Costs
Cost per barrel: $23.21
Profit Estimates
Input picture of cash flow position thing!!!!!
Payback period:
9.7 years
Cash Flow at 25 years:
$9.7 billion
NPV at 8%:
$1.5 billion
Return on Investment:
162%
Risk Assessment
Distribution for NPV / Net Income/G30
Values in 10^ -10
Values in Billions
0.000
0.500
1.000
1.500
2.000
2.500
Mean=1.485529E+09
-6 -4 -2 0 2 4 6 8 10-6 -4 -2 0 2 4 6 8 10
5% 90% 5%
-1.4391 4.3723
Mean=1.485529E+09
Distribution for Total / ROI/F29
0.000
0.200
0.400
0.600
0.800
1.000
Mean=0.9269187
-2 -1 0 1 2 3 4-2 -1 0 1 2 3 4
5% 90% 5%
-.1468 1.9868
Mean=0.9269187
Risk Assessment
Future Work
• Logistics
– Transportation of materials
– Drilling complications
– Reclamation Process
– Work Force
• Optimizations
– Heater to heater distances
– Heater temperature
– Heater material
– Composition of reservoir
• 3D temperature profile
• Detailed project risk assessment
Questions?
Net Present Values:
Varied Rates
Rate NPV (25 years)
0.08 $1.5 billion
0.10 $0.8 billion
0.12 $0.4 billion
0.15 $-0.1 billion
Risk Assessment:
NPV with Rate=10%
Distribution for NPV / Net Income/G30
Values in Billions
0.000
0.200
0.400
0.600
0.800
1.000
Mean=8.349873E+08
-6 -4 -2 0 2 4 6 8
-1.4-1.4-1.4-1.4
-6 -4 -2 0 2 4 6 8
4.99% 90.01% 5%
-1.4 3.0769
Mean=8.349873E+08 Mean=8.349873E+08
Risk Assessment:
NPV with Rate=12%
Distribution for NPV / Net Income/G30
Values in Billions
0.000
0.200
0.400
0.600
0.800
1.000
Mean=3.687469E+08
-4 -3 -2 -1 0 1 2 3 4 5-4 -3 -2 -1 0 1 2 3 4 5
5% 90% 5%
-1.3767 2.1075
Mean=3.687469E+08
Risk Assessment:
NPV with Rate=15%
Distribution for NPV / Net Income/G30
Values in Billions
0.000
0.200
0.400
0.600
0.800
1.000
Mean=-1.012595E+08
-4 -3 -2 -1 0 1 2 3 4-4 -3 -2 -1 0 1 2 3 4
5% 90% 5%
-1.3296 1.1296
Mean=-1.012595E+08
Temperature Profile:
Affect of Thermal Diffusivity
Thermal Diffusivity vs. Time
0
20000
40000
60000
80000
100000
0.003 0.008 0.013
Thermal Diffusivity (ft^2/hr)
Time
(hrs)
40 ft 50 ft 60 ft 30 ft 70 ft
Temperature Profile:
Affect of Heater Distance
Heater Distance vs. Time
0
20000
40000
60000
80000
100000
25 35 45 55 65 75
Heater Distance (ft)
Time (hrs)
.004 ft^2/hr .008 ft^2/hr .016 ft^2/hr
Reservoir Production:
Fracturing
Reservoir
Heater
Water and
Sand
Heater