Oil Exploitation
Oil Exploitation
At Zargon our core competency is oil exploitation, increasing oil production and reserves from existing reservoirs. It is a technically complex business and each oil reservoir is treated differently depending on the interrelationships of the reservoir rock, fluids, pressures, wells and surface facilities. We work in all three phases of oil reservoir depletion: primary, secondary and, more recently, tertiary recovery projects.
Each stage requires multifaceted reservoir evaluations and meticulous exploitation plans, which are tailored for individual reservoir situations. For the majority of our projects, we use three dimensional ("3D") seismic, detailed geological interpretation, fluid flow reservoir engineering and operating data to identify and characterize our oil reservoirs. Based on these assessments, we optimize or initiate reservoir recovery strategies with the end goal of maximizing financial returns for our shareholders.
In a typical Alberta Plains South Mannville oil reservoir, primary production brings only about 15 percent of the original oil-in-place to the surface. The implementation of a waterflood improves recoveries, but still only captures approximately 40 percent of the original oil-in-place. Tertiary floods, based on chemicals, can increase the recovery of oil by another 10 percent or more.
Primary Recovery Projects
With primary oil recovery projects, oil can be produced using naturally occurring reservoir drive mechanisms, such as natural gas expansion or pressure support from an underlying aquifer. The primary reservoirs that we work on tend to be only partially developed due to lower permeability rock, poorly defined pool boundaries or, in some cases, inefficient pool development by past operators. We use our technical exploitation skills to apply both traditional and new technologies to increase oil recovery factors in these reservoirs.
Our primary recovery projects are often developed with either vertical or horizontal wells, which sometimes require fracture stimulation to initiate production. In other cases, we upgrade pumping equipment or fluid handling and treating facilities to improve performance. As each of our projects tends to contain 4 to 40 million barrels of oil-in-place (as recognized by the regulatory authorities), these reservoirs can often be overlooked by our larger competitors. Still, the project economics can be very attractive.
Primary Recovery Projects
| Core Area | Project | Formation | Drilling Program |
| Williston Basin | Weyburn & Elswick, SK | Midale | Horizontal drainage wells |
| Steelman, SK | Frobisher | Horizontal wells | |
| Fertile, SK | Torquay/Bakken | Stimulated horizontal wells | |
| Daly & Virden, MB | Lodgepole | Stimulated horizontal wells | |
| Truro & Mackobee Coulee, ND | Frobisher Equivalent | Horizontal and stimulated horizontal wells | |
| Alberta Plains South | Taber South, AB | Sunburst/Glauconite | Horizontal wells |
| Grand Forks, AB | Sawtooth/Glauconite | Horizontal and vertical wells | |
| Alberta Plains North | Killam, AB | Glauconite | Horizontal wells |
| Bellshill Lake & Provost, AB | Mannville | Optimization and vertical wells | |
| Hamilton Lake, AB | Viking | Stimulated horizontal wellss | |
| Highvale/St. Anne, AB | Banff | Horizontal wells |
Secondary (Waterflood) Recovery Projects
Secondary oil recovery projects, also known as waterfloods, rely on water injection to increase reservoir pressure in order to improve production rates and sweep incremental oil from the reservoir. In some cases, we are working on larger mature assets where we use our technical knowledge to modify and optimize existing waterfloods. In other situations, we work on partially developed pools with lower permeability rock or poorly defined boundaries where waterfloods have not yet been attempted.
Waterflood projects can have a lengthy start-up period as regulatory applications must be prepared and submitted prior to construction or modification of field facilities for water injection. Once water injection commences, it may take years for the reservoir to repressure and to realize improved production rates. Typically, once water injection has restored reservoir pressures, we accelerate production with the drilling of horizontal or vertical drainage wells. As with our primary projects, we find that the small scale and long term horizon of our secondary projects can be overlooked by our larger competitors or less patient peers, but these initiatives represent attractive opportunities to create value.
Secondary (Waterflood) Recovery Projects
| Core Area | Project | Formation | Waterflood Action Plan |
| Williston Basin | Steelman, SK | Midale, Frobisher Marker | Initiate and drill horizontal wells |
| Elswick, Ralph & Weyburn, SK | Midale | Initiate or modify and drill horizontal wells | |
| Workman & Carnduff, SK | Frobisher | Modify and drill horizontal wells | |
| Haas, ND | Alida Equivalent | Modify and drill horizontal wells | |
| Alberta Plains South | Taber South, AB | Sunburst | South waterflood startup in Q1/2011 |
| Grand Forks, AB | Glauconite/Sawtooth | Initiate and drill vertical wells | |
| Little Bow, AB | Glauconite | Reactivate and/or initiate multiple pools | |
| Alberta Plains North | Hamilton Lake, AB | Viking | Reactivate and drill horizontal wells |
| Carrot Creek, AB | Cardium | Drill horizontal wells | |
| Brazeau, AB | Nisku | Drill vertical well | |
| Spirit River, AB | Gething | Initiate waterflood |
Tertiary (Enhanced) Recovery Projects
In 2009, the addition of the Little Bow property from the Masters Energy Inc. corporate acquisition added our first tertiary recovery project to our oil exploitation inventory. We are continuing to advance the project with an anticipated field implementation in the fall of 2012.
Tertiary, or enhanced recovery, is the third stage of recovery techniques and typically involves the injection of chemicals or other fluids to improve oil production and oil recovery factors. While waterfloods are an effective exploitation strategy, in select reservoirs it is possible to use a combination of chemicals to recover more oil.
At Little Bow, we are proposing to implement an Alkaline Surfactant Polymer ("ASP") tertiary flood. With this process, the chemicals are injected sequentially in a dilute water solution into the reservoir. Alkali is the first injected chemical, and its role is to precondition the reservoir. The surfactant works to reduce the surface tension difference between the oil and water, in much the same way as detergent is used to remove oils in the household. The reduced surface tension will allow small oil globules to coalesce and flow through the reservoir pore structures. The fi nal chemical, polymer, is added to thicken the water to help push the oil and water mixture through the reservoir to producing wells. The final stage is another flush from water injections, which essentially rinses the remaining mobile oil from the reservoir.
Zargon has a 100 percent interest in the Little Bow Upper Mannville I pool, which contains significant oil-in-place. Our laboratory studies and computer modeling suggest that an ASP tertiary flood can increase recovery factors in this pool by an additional 10 percent of the oil-in-place.
In 2011, Zargon expects to take the necessary planning, design and sanctioning steps to permit field capital deployment of the first phase of the Little Bow ASP project in the fall of 2012. Ultimately, we anticipate that ASP technology will be extended to pools adjacent to Little Bow, which were acquired by Zargon in the last two years.
Although ASP tertiary floods are relatively complex and time consuming to implement, we believe that ASP and related technologies represent a very significant upside for Mannville high permeability, medium-gravity reservoirs in both the Little Bow area and other southern Alberta reservoirs.