Offshore Oil and Natural Gas Life Cycle
Oil and natural gas activity takes place in four unique stages: exploration, development, production and decommissioning. Below is an overview of how each stage works specifically related to the offshore oil and natural gas industry.
Exploration is the process of locating oil and natural gas resources. Companies may begin their exploration process by reviewing existing geological and geophysical data to learn more about potential reservoirs. Once the data is compiled and analyzed, companies make an economic calculation which factors in things like geological risk, financial returns that might be earned, taxes and royalties etc., to determine whether a geological prospect is worth exploring.
Conducting a marine seismic survey is typically the next step in exploring an offshore area as precise information is needed before investing in drilling an exploratory well given the high cost of drilling in the offshore. A marine seismic survey involves survey vessels using a compressed air gun to send a sound waves through the water at regular intervals along a predefined path. Seismic vessels tow streamers behind them containing hydrophones which record the reflected energy. Hydrophones may also be placed on the seabed in more shallow waters.
The result of a seismic survey is essentially a picture of the various rock layers underneath the seabed. This data is used to identify geological structures that may contain oil and natural gas resources. To learn more about seismic surveys read CAPP’s brochure on marine seismic surveys.
If an analysis of seismic data shows a geological structure that could contain oil and natural gas resources, a company may decide to drill an exploration well. Exploration wells are drilled to confirm whether geological formations identified in seismic surveys contain oil or natural gas.
Before drilling can begin, companies must apply for the appropriate approvals from the relevant regulatory body in Atlantic Canada – the Canada-Newfoundland and Labrador Offshore Petroleum Board or Canada Nova Scotia Offshore Petroleum Board, which includes planning for environmental mitigation and safety planning.
Each well has four major parts:
- The sections of drill pipe joined together to form the drill string
- The drill bit used to cut through the rock
- The equipment that rotates the drill string and the drill bit
- The drilling fluid that circulates between the drilling platform and the drill bit
To begin drilling, a surface hole is drilled a few hundred metres into the sea floor. A continuous steel pipe called a surface casing is lowered into the hole and cemented in place. A blowout preventer (BOP) is installed on the top of the surface casing to prevent water or hydrocarbons from escaping into the environment in the unlikely event of an emergency or equipment failure. Once the BOP is pressure tested, the next section of the well is drilled by lowering the drill bit and string through the BOP into the surface hole for drilling. Extra joints are added to the drill string as the drill bit cuts deeper into the rock. When a section of well is completed, the drill string is pulled out and sections of the casing are joined together, lowered into the well and cemented in place.
Once the drilling is complete, it is ready to become the conduit for the oil or natural gas in the reservoir if the reservoir contains hydrocarbons. The company may use the pressure in the reservoir, pumps or other stimulation methods to bring hydrocarbons to surface. A series of valves control the flow of the hydrocarbons in a safe and controlled manner.
The drilling process is the same for all types of wells drilled offshore – exploration wells, delineation wells (used to help determine the size and shape of a reservoir) and production wells (used to actually produce the oil and natural gas from a reservoir).
All of the drilling activity takes place on a special offshore drilling platform which can be fixed or floating. Drilling an offshore well can take three to four months and can cost $150 million to $200 million per well, depending on water depth and other factors.
Should a company decide that it wants to proceed to oil and natural gas production, the next step is development. During the development phase, the company develops a series of plans which outline exactly how it will produce the oil and natural gas in a particular reservoir, the environmental protection measures that will be put in place to minimize any environmental impact, the safety measures that will be used on the project, and the benefits of the project to the relevant communities and province as a whole (including employment, revenues, contracts, etc.). During development planning, the company will typically hold a series of consultations with key stakeholders and the general public to explain the project and its benefits. If the plan is approved by the appropriate regulatory body and relevant governments, the company will then proceed with construction of the production facilities and any other infrastructure required, as outlined in the development plan.
The offshore development phase can take five to 10 years, depending on the size of the project.
Producing oil and natural gas offshore is a complex process due to the challenges of operating in a remote and sometimes harsh environment. Production facilities are built to withstand the offshore environment and its challenges, including the potential for sea ice and icebergs in some areas.
Several key activities happen on a production facility:
- Drilling and maintaining the wells used to produce oil and natural gas and, where required, injecting water, chemicals and possibly gas, depending on the project, back into the formation;
- Processing and separating the produced mixture of oil and natural gas, and removing any water and sand from the hydrocarbons;
- Storing produced liquids for transport to markets or to a transshipment terminal; and
- Gathering and processing gas and natural gas liquids, and sending them through a subsea pipeline to shore (or, if not processed at the platform, the raw gas and liquids are sent to shore through a pipeline for processing at a shore-based facility).
These functions may be combined in one structure or carried out using separate facilities or at a separate location.
Although there are different types of offshore production facilities, all are made up of two parts:
- The platform supporting the upper, or “topsides”, facilities; it may float or sit on the seabed and may contain silos for storage of crude oil;
- The “topsides”, where all the operating and support functions of the producing operations are housed.
The type of production facilities used in offshore production depends on many factors, including water depth, environmental conditions, proximity to land, the depth and extent of the oil and natural gas field, and anticipated production rates. The three types of production facilities common in Atlantic Canada are:
- A gravity base structure (GBS): a concrete-based structure which sits on the sea floor and may contain tanks in the base that are used to store oil before it is shipped to shore.
- A floating system: a vessel, which can contain production, oil storage and transshipment facilities, and which is connected to the producing wells through an internal turret that is anchored in position. The structure then rotates around the turret in response to local winds and currents.
- An anchored structure with legs: sometimes called a “jacket”, this type of structure has steel or concrete legs that are floated by barge to the desired location and then lowered to the seabed in an upright position. The legs are anchored to the bottom with steel piles driven into the seafloor.
An offshore oil and natural gas field can produce for decades, depending on its size. Once all of the accessible oil and natural gas reserves in a field have been produced, the project can be decommissioned, meaning that wells are plugged and abandoned, infrastructure is removed and the site is cleared to remove any debris. Decommissioning also involves test trawling to verify that the area is free of any potential obstructions. These activities are monitored by the regulator.