We’ve all heard the analysts’ chants. The big fields are gone. The easy oil is extinct. That’s true, and it’s false. The easy oil still is easy to find if you’re Saudi Arabia, or Kuwait, or Venezuela, or Iran. It’s harder to find if you’re an independent or even an international oil company.

That realization led Shell Exploration & Production to a path that aims for maximum profits in place of easy pickings of low-hanging fruit.

During a meeting with E&P editors at Shell Exploration & Production headquarters in Rijswijk, The Netherlands, Matthias Bichsel, executive vice president of production and project execution and the top man in research and development and technology development, shared his view of the present and the future for large oil companies in the 21st century.

The Gulf of Mexico Pleistocene play, Brunei and the North Sea all are maturing, and the company is looking for new core areas, he said. At the same time, a lot of independents are branching out of their tradition home turf into international markets. The movement of national oil companies into international arenas makes the competition still tougher.

“There’s intense competition for the easy barrels,” he said. Those easy barrels are costly. For example, a company seeking easy barrels in Libya might have to turn over 95% of its production to the state. “Assume you find a 500-million-bbl field. All you get is 25 million bbl. We don’t want to play in the easy barrels only but we also aim at the tough barrels — oil shale, sour gas, oil sands, tight gas,” Bichsel said.

Tight gas exists all over the world, but the technology to recover it is practiced in few places outside the North America. That’s one of Shell’s goals, to reach the reserves that aren’t targets of the kind of competition that drives returns into the ground.

The exploration and production strategy then takes a turn. The smart company leverages and integrates technology across operations from upstream to downstream. Shell’s Pearl gas-to-liquids (GTL) project in Qatar is an example. Production from North field feeds the plant that provides clean diesel and chemical feedstocks to retail users. The clean GTL diesel from Shell helped Audi win the 24-hour Le Mans race with no breakdowns and fewer stops for fuel. So technology is both an enabler and a differentiator for Shell.

Technology is expensive, but integration pulls costs down. For example, by taking an integrated approach, Shell has locked in global rig costs through 2009 “at a very good price,” roughly US $300 million a year better than a spot-market approach, he said.

Some of the company’s hard barrels have come from Oman, where it conducts a whole range of improved oil recovery techniques such as miscible gas, carbon dioxide and polymer floods to reach more oil. It also uses swellable packers to block water invasion through fractures in the limestone formations.

At giant Pinedale field in southwestern Wyoming, the tight sands require tailored fracture treatments. By applying the latest technology, Shell has lowered well costs by 15% and achieved a 30% production increase since early 2005. A further 130+-well program using 15 rigs is planned for this year.

At the Salym field complex in Russia, the company used technology to increase the oil available to the drillbit and drove drilling times down to a minimum of 7 days per well.
At the same time, it looks for new legacy projects such as Sakhalin II in eastern Russia and through its participation in the 13-billion-bbl-plus Kashagan field offshore Kazakhstan in the Caspian Sea.

Lowering the cost of tough barrels takes work and coordination. Low-cost drilling is part of the equation, but the only expensive wells are the ones that don’t produce commercial reserves. A company that can accurately predict quantities of oil and gas and reservoir quality will not drill a non-commercial well. Knowledge of the reservoir helps the company with smart reservoir management and real-time management. Technology helps humans make the right choices.

“We still have a lot to learn about the reservoir,” Bichsel said. “We’re putting more into seeing inside the reservoir; seismic, gravity, magnetics, cross well seismic. We now use seismic on a very tiny scale.”

Who knows — with the right technology aimed at that tough oil, Shell and other companies working around the world may be able to duplicate Aera Energy’s performance in southern California. That company, partly owned by Shell, is getting 80% recovery of the heavy oil in place in South Belridge field. That feat could nearly triple world oil reserves.