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High Tech Heads Underground - and Underwater

Michael Barrett
0 Comments|August 29, 2006

How new technologies are changing how resource companies discover and process their precious commodities


How new technologies are changing how resource companies discover and process their precious commodities

Originally published in the StockHouse Natural Resource Supplement on April 5, 2006

Deep below the surface of the earth, well above its surface, and even on the ocean floor, new technologies are revolutionizing the resource industry.

The stakes are so high, and the players so large, that anything that makes resources easier to find, easier to extract and easier to process is going to be pursued.

So, in western Canada's oil patch, innovative seismic technology lets Shell Canada (TSX: T.SHC, BullBoards) and Mancal Energy see through a mountain, leading to the discovery of an estimated 600 - 800 billion cubic foot pool of natural gas at Tay River.

BHP-Billiton's Falcon technology lets companies survey properties for mineral and hydrocarbon deposits from the air. Adopted from U.S. military technology, the technology gives companies much easier access to areas that may be difficult to reach, survey or test, and does so without environmental impact.

Offshore Papua New Guinea, about one mile below the ocean's surface, Nautilus Minerals has completed the world's first successful commercial drilling exploration for sea floor gold and copper deposits. Company officials note that the sea floor is a low-cost source of metals, just as it is for oil and gas.

Closer to home in Canada's oil sands, a number of firms and consortiums are developing, testing and improving technologies that will allow them to cost-effectively harness the tremendous potential from that region. There may be as many as 1.5 trillion barrels of raw resource there, but it is estimated that just 175 billion barrels are recoverable with today's technology.

Technology has always been crucial to the resource industry. Locating and extracting oil was never as easy as it seemed on the opening credits of the Beverly Hillbillies. As the resources became more difficult to locate, technology has allowed the world's energy producers to move offshore, drilling oil and natural gas from the ocean floor, as just one example. That trend continues today, supported by higher commodity prices that make high-tech solutions more economically feasible.

"To locate a reserve, takes a tremendous amount of time and effort and dollars," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers. "There's a whole lot of competition, and companies want to find reserves efficiently."

Because drilling is so expensive, the oil and gas industry uses seismic surveys to map the underground. Different densities of rock reflect seismic waves in different ways. Geologists measure these differences and calculate what kinds of rock are present at about what distance from the surface. This generates more accurate drilling.

Improvements to seismic technology will continue to change the industry. Today, many larger firms have detailed conference theatre rooms that project the 3-D seismic information, allowing engineers to effectively model it in three dimensions, and follow fluid movement in reservoirs as they are developed and produced. Faster computers process huge amounts of data and display it so they can virtually immerse themselves in the middle of the reservoir. The study of reservoirs over time, 4-D seismic, helps companies calculate the best way to extract as much resource as possible from a reserve.

Once a deposit is found, companies are eager to extract as much of the reserve as possible. In a typical oil and gas discovery, just 25 to 35% of each reservoir is recovered. Research led to the discovery that horizontal wells allow greater recovery from a reservoir. Fracturing techniques create small cracks into the reservoir rock and these small fractures act as a "highway" for hydrocarbons to reach wells, improving recovery rates.

Many producers used large amounts of natural gas to develop and process their oil sands production. As natural gas prices have grown stronger, companies have used engineering to reduce or eliminate the dependence on natural gas.

OPTI Canada's proprietary OrCrude Process, integrated with its Steam Assisted Gravity Drainage process, has resulted in lower operating costs at its Long Lake property, by virtually eliminating the requirement for natural gas. Other natural gas reduction approaches include a "Toe-to-Heel Air Injection" in which underground bitumen is ignited, and used to force oil out a horizontal production well. Another approach tested effectively processes the bitumen into better quality crude oil while it is still underground.

But technology can also improve more simple elements of resource development.

Bruce Jackson, managing director of Barrantagh Investment Management and manager of a portion of GGOF Resources Fund, recently invested in a private company with unique expertise in drilling mud. That's the fluid that's put down the drill stem to keep it lubricated while drilling.

"There are an infinite number of chemical combinations you can use, depending on the formations you're drilling through," Jackson said. "Using the wrong mud system can irreparably damage an otherwise economic well bore."

New technologies don't exclusively involve evaluating geology thousands of feet under the ground, or flying over it. They can also come at the very point where the drill bit meets the earth.

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