Making Oil Wells Good To The Last Drop

New gear vastly boosts the amount of recoverable oil

In a back room of Petroleum Engineering Services Inc. near Houston, technicians are putting the finishing welds on a torpedo-like cylinder of gleaming steel. Its destination is 12,000 feet beneath the surface of the North Sea, in the shaft of a British Petroleum Co. oil well. Snugged into place, it will act as a high-tech sensor and valve--allowing BP operators to monitor the pressure and temperature of oil coming from two different pools and, if necessary, shut one off at a moment's notice.

The torpedo imagery is apt, because this device and others like it could blow a huge hole in the standard methods of oil drilling and production. Companies working on the new gear for "smart wells" range from small equipment developers like Petroleum Engineering Services to giants such as Baker Hughes, Dresser Industries, Halliburton, and Schlumberger. "This is putting control into a part of the business that didn't have it before," says Roger N. Anderson, a Columbia University researcher and consultant who works with major oil companies on new technologies.

ELBOW ROOM. Until now, oil wells were little different from those that roughnecks drilled in the 1880s. In the 1970s, the French oil giant Elf Aquitaine invented a well with an elbow that could snake horizontally along an oil pocket to boost recovery. But horizontal drilling still leaves about 65% of the oil in a reservoir untapped. And oil companies still must drill and tap adjacent oil pockets individually. Otherwise, pressure differences between pockets can have disastrous results, such as causing oil to flow in the wrong direction. Also, if one pocket runs out of oil and starts producing water, it can contaminate the entire well.

That's why oil companies are turning to underground valves, which can control the pressure and production from different pockets of oil simultaneously. Using them, companies can drill "multilateral" wells that suck up oil from multiple, separate reservoirs--including pockets too small to bother tapping with a new vertical shaft. The bottom line: a vast increase in economically recoverable oil.

The new era is already starting to unfold in the North Sea, as well as in Alaska's Prudhoe Bay, and soon, the Gulf of Mexico. Shell International Petroleum Co., a division of Royal Dutch/Shell Group, will drill 700 such hub-and-spoke wells worldwide over the next three years, up from a handful this year. And Norway's Norsk Hydro expects to spend 70% of its nearly $1 billion drilling budget on the technology over the next five years. While industrywide figures for equipment makers aren't available, Halliburton alone projects that sales of equipment for multilateral wells should soon produce $300 million in annual revenue. According to British Petroleum, multilateral drilling and other techniques recently halted the steep decline in the quantity of Prudhoe Bay reserves judged economically recoverable.

While smart wells spout oil, they also spout data--on the oil's temperature and pressure, and eventually on its viscosity and water and gas content. Plugging the data into computer simulations, oil-service companies can manage a reservoir's production more intelligently, either draining the reservoir slowly and thoroughly or pumping hard and then moving on for quick returns. On Sept. 16, Baker Hughes Inc. and Schlumberger Ltd. announced plans to spend $50 million jointly developing smart tools such as sensors. Pending shareholder approval, Halliburton plans to spend $508 million to acquire Landmark Graphics Corp., which makes software for managing reservoirs. Dresser Industries is developing a system that will automatically narrow a lateral well's intake to cut off a damaging spike in pressure.

Smart-well components are expensive, and the wells require long-term monitoring and active management. In return, though, they open up whole new pools of oil to exploitation while giving producers an unprecedented degree of control. "Where we are heading is to monitor an oil field in Nigeria by sitting here in Houston," says B.N. Murali, vice-president for technology at Halliburton Energy Services. Instead of grimy roughnecks straining to bring a troubled well back into service, the oil industry's next heroes may be the computers in those gleaming steel cylinders, humming softly deep beneath the earth.

Before it's here, it's on the Bloomberg Terminal.