Investing in Oil and Gas
Mike May

Ended: Oct. 4, 2012

The plots of output voltages from the geophones versus time are later interpreted to identify structures of subsurface formations that may be trapping oil and gas. Seismic data can also be used to obtain clues as to the nature of the fluid in the pores of those formations - be they liquid or gas. Seismic data never hurts but it also never provides certainty as to whether or not a structure contains hydrocarbons; and it does not provide certainty as to whether the fluid in the pore space of a formation is a liquid or a gas.
In general, high resistivity is good and low resistivity is bad. This is because oil and gas do not conduct electricity. And most rock grains do not conduct electricity although some clays in shales do conduct electricity. Saline formation water does conduct electricity. Thus pay zones that are filled with non-conductive oil and gas tend to have higher resistivities than zones that are saturated with saline formation water. Resistivity can be used in empirical equations to calculate water saturation. Measurements from various depths of investigation provide an indicator of permeability. Deeper readings are indicative of true formation resistivity while shallower readings are influenced by mud filtrate invasion if the zone is permeable.
Shales tend to contain more potassium than sandstones or carbonates. So higher gamma ray counts within a particular formation usually indicate a higher percentage of shale. Formations with low gamma ray counts are called “clean” formations and these are most likely to be non-shales such as sandstones and carbonates.
In general, a low gamma ray is good and a high gamma ray is bad because a low gamma ray is likely to be found in a non-shale such as a sandstone or a carbonate. And these are common reservoir rocks for oil and gas.
Some gamma ray tools are capable of not only counting the number of gamma rays detected at the tool but also measuring the energy level of each gamma ray. Such tools are called spectral gamma rays tools. They enable a Log Analyst to determine what elemental isotope emitted each gamma ray whether it was potassium, uranium, or thorium. Most gamma rays in most wells are emitted by potassium in shale. However, uranium and thorium sometimes appear in high concentrations. Gamma rays emitted by uranium or thorium are not related to shale content and their presence can skew an analysis if the gamma rays they emit are inadvertently assumed to be from potassium in shale.
If you know the density of the grains and the pore fluid then you can use the bulk density to calculate porosity. Sandstone is usually assumed to be 2.65 gram/cc. Limestone is assumed to be 2.71 gram/cc. And for the purpose of calculating porosity, the pore fluid density is assumed to be water with a density of 1.0 gram/cc. The elemental composition tools which will be discussed shortly can provide a more accurate grain density so that you do not need to make an assumption. The density measurement also assumes that the material has a Z/A ratio of 0.5 where Z is the atomic number and A is the atomic mass. This assumption is usually true with the notable exception of when you are logging in salt (halite).
Generally you want to find formations with high porosity because they can hold more oil and gas and they tend to have better permeability. A density tool is designed to be run decentralized. Most density tools (but not all) have a pad that is pressed against the borehole wall while logging up. This pad contains both the chemical source and the gamma ray detectors. A density tool functions only in open hole.
The number of neutron capture gamma rays detected at the source varies inversely with the amount of hydrogen in the formation. And most of the hydrogen in a formation is in the pore fluid – be it oil or water. Recall that hydrogen is not a common element in the minerals that make up rock grains. So as we are measuring the hydrogen content of the formation we are effectively measuring the porosity as well. Higher hydrogen content means higher porosity. Lower hydrogen content means lower porosity.
The science of analyzing all of the log, fluid, and core measurements and determining what they mean is called Petrophysics. To learn more about the Petrophysicists and Log Analysts who perform this kind of work, visit the Society of Petrophysicists and Well Log Analysts at
What are the drainage areas of the nearby wells? Is it possible that those wells have already drained the area where we will drill? The more permeable the rock and the fewer variations there are within the rock, the wider the drainage area. The Operator should have a plausible reason for believing that the area has not been drained. For example they may say that all of the wells in this area are drilled on a 40-acre spacing and they have been shown to produce about 30,000 barrels of oil per well. Or they may say that that the new well will be in a different fault block and thus you will be producing from a separate reservoir.
Are the formations brittle or ductile? If brittle, is it important for the rock to be brittle so that fractures are present? Many formations produce at much higher rates when natural fractures are present.
 What are the permeabilities of the target formations? Admittedly, knowing the permeability is less important than knowing the production rates, decline characteristics, and cumulative productions of analogous wells but it can help you get a feel for the rock you are working in.
What is the expected reservoir pressure? Is it normally pressured or over-pressured? Pore pressure determines the mud density that must be used. And the fracture gradient determines the upper limit of the mud weight that can be used. Pressure also affects the downhole and surface equipment that must be used. Equipment for higher pressure cost more.
When purchasing existing production it is important for you to determine the reservoir drive mechanism because some drive mechanisms provide a long predictable decline in production which you can confidently bid on while others subject you to sudden death meaning that your production will suddenly change from a high rate to zero in a matter of days when water reaches the perforations. Water drive is the best drive mechanism for oil but it is the worst drive mechanism for gas. Water drive gas reservoirs are sudden death. Depletion drive (volumetric) is the best drive mechanism for gas reservoirs. The production histories for most wells are publicly available. Ask the state oil and gas regulatory agency.
Basement - The “Basement” is igneous rock of Pre-Cambrian age that underlies Phanerozoic sedimentary rock throughout most of the world. It is usually granite. Most sedimentary rocks in the world are of Paleozoic, Mesozoic, or Cenozoic age - which means they are 0 to 542 million years old. Rocks created more the 542 million years ago were formed during a period of Earth’s history known as the Pre-Cambrian time. They tend to be non-sedimentary rocks such as granite and they rarely contain oil and gas. Thus, drilling operations usually cease when a well bore penetrates all of the younger rocks that were deposited between zero and 542 million years ago and then enters the “Basement” which is more than 542 million years old. Experience and conventional thinking says that there is very little to be gained from drilling in the “Basement”.
Dip - The angle of a layer of sedimentary rock relative to horizontal. Horizontal layers of rock are said to have a dip of zero degrees. If beds were thrusted to a point that they were completely vertical they would have a dip of 90 degrees. Most underground formations are somewhere in between. While most sedimentary rock is deposited in horizontal layers those layers can be tilted later as a result of tectonic activity. Dip is important to Oil and Gas Operators because oil floats on water and gas floats on oil. If oil, gas, and water are present in permeable layers of rock, and the rock is tilted or is dipping in one direction, the oil and gas will naturally migrate “up dip” to the higher end of the rock because oil and gas float on water. Operators are often trying to determine which direction is up dip of existing productions so they can drill more wells. Moving down dip would increase the odds of drilling in a portion of the rock that is completely saturated with water rather than oil and gas. You can observe this same phenomenon by filling a bottle half-and-half with oil and water and then holding the bottle horizontally but slightly tilted. The oil will accumulate in the higher end of the bottle and the water will accumulate in the lower end of the bottle.
Dual Completion - An arrangement of equipment within a wellbore that enables the well to produce oil and gas from two different pay zones simultaneously. The production from the pay zones are kept separate from one another by producing them through two different paths within the wellbore that are isolated from each other. Dual completions are more complex than single completions but they allow the Operator to enjoy the time value of money benefit of producing two zones at the same time.
Fault - A fracture or crack through sedimentary rock where the rock layers on one side of the fracture have moved up, down, or sideways relative to the rock layers on the other side of the fracture.
Geologic Time Scale - The Earth is approximately 4.5 billion years old. Geologists have divided up that time in to smaller blocks of time and given those blocks of time names for ease of communication and called it the Geologic Time Scale. The largest blocks of time are Eons. Eons are divided in to Eras. Eras are further divided into Periods. Periods are divided in to Epochs. Epochs are divided into Ages. The most recent 542 million years of Earth’s history are of the most interest to Petroleum Geologists because most life on Earth has lived during that time and it is in rocks of this Eon where most organic matter exists and where most oil and gas reservoirs are found. The diagram shows the Geologic Time Scale for the most recent 542 million years of Earth’s history - an Eon known as the Phanerozoic Eon.
Permeability - A measure of a rock’s natural capacity to allow fluid to flow through it. Higher permeabilities are desirable because they allow for higher production rates and higher cumulative production if all other factors are constant. Permeability usually increases with increasing porosity. Increasing compaction, poorly sorted grains, and the presence of any form of cementation within the pore space all serve to decrease permeability. Approximations of permeability can be made using downhole formation testing tools and also with magnetic resonance devices.
Porosity - The ratio of pore space within a rock to the total volume of the rock. Porosities of oil and gas reservoirs typically range from 5% to 35%. Higher porosities are better than low porosities because higher porosities mean there is more space occupied by oil and gas.
Resistivity - A property of a material that describes its resistance to the flow of electricity. Resistivity is one of the primary logging measurements made in oil and gas wells. Resistivity logs can be run on electric wireline or on drill pipe. With the exception of some clays, grains of rock do not conduct electricity. And oil and gas do not conduct electricity. Saline formation water does conduct electricity. So generally speaking, if the salinity of formation water is constant, then the resistivity of a formation is inversely related to porosity. However, if a formation is logged with high porosity and high resistivity, the high resistivity may be indicative of that formation being saturated with oil and gas rather than saline water. The unit of measurement of resistivity is ohm-meters. The inverse of resistivity is conductivity.
Saturation - The percentage of the pore space within a formation that is occupied by a particular fluid. Oil saturation (So) is the percentage of the pore space within a formation that is occupied by oil. Gas saturation (Sg) is the percentage of the pore space within a formation that is occupied by gas. Water saturation (Sw) is the percentage of the pore space within a formation that is occupied by water. A formation that contains nothing but water has a water saturation of 100%. The sum of Oil Saturation plus Gas Saturation plus Water Saturation is 1 (100% of the pore space).
Section - A square mile of land. 640 acres in the shape of a square.
Sedimentary Rocks - Sedimentary rocks are one of three classes of rocks: igneous, sedimentary, and metamorphic. Sedimentary rocks are formed when older rocks are broken down by weathering or biogenic processes, then transported by water, wind, or ice, and finally deposited in layers of sediment. These layers of sediment are later compacted by the weight of further sediment above them. They later harden, or lithify, to form continuous solid rock. Sedimentary rocks may contain a wide array of minerals but the most common minerals are quartz, feldspar, clays, calcite, dolomite, and evaporites. Sedimentary rocks can be divided in to three types: Carbonates, Clastics, and Precipitates. Carbonate sedimentary rocks are composed of limestone which is the mineral calcite (Ca CO3). In some cases magnesium enters the rock and replaces half of the calcium and thus changes the calcite to dolomite (Ca Mg(CO3)2). Carbonate sedimentary rocks are formed from the deposition of the remains of marine organisms or from calcium carbonate produced by the biologic processes of living organisms in shallow or deep seas. These organisms include algae, shells, and single-cell organisms. Clastic sedimentary rocks are separated in to four groups based on grain size. They are conglomerates, sandstone, siltstone, and mudstone or shale. Shale is a general description for a rock that is deposited in a low energy environment and is composed of varying amounts of hydrous aluminosilicate clays such as kaolinite, illite, and smectite, together with fine-grain silica (silts), calcite, and sometimes organic material known as kerogen. Shales are often found interbedded or mixed with sandstone. Clean sandstone is a term that describes sandstone without shale. Precipitates, or chemical sedimentary rocks, form when material precipitates from solution and later lithifys into solid rock. The most common examples are evaporates such as salt and gypsum which form in vast thick layers when the water in a sea evaporates. Most of the oil and gas in the world has been produced from sedimentary rocks. The sedimentary rocks that hold oil and natural gas are usually limestone, dolomite, sandstone, or shale or mixtures of these.
Sidetrack - A wellbore that branches off of a previously drilled wellbore. Sidetracks are almost never planned prior to spudding a well. They are contingencies that are drilled when the first wellbore either becomes unusable (as a result of equipment being lost in the hole or circulation problems) or does not intersect the desired formation in the desired location. The tool that used to initiate a sidetrack by diverting a drill bit in to the side of an existing wellbore is called a whipstock.
Solution Gas Drive Oil Reservoir - In a solution gas drive reservoir, there is hydrocarbon gas dissolved inside the liquid oil in a reservoir. As oil is produced the pressure of the reservoir declines an some of the dissolved gas comes out of solution and forms small bubbles of gas inside the pore of the reservoir rock. The pressure from these bubbles pushes the oil toward the wellbore. The gas-oil ratio will increase with time. With all other things being equal, a solution gas drive oil reservoir will yield an ultimate oil recovery that is less than a Water Drive Oil Reservoir.
Source Rock - A sedimentary rock formation that contains organic material. When the formation is buried under younger sediments and compressed and heated, some of the organic material is converted to oil and gas which later migrates up though the formations above the source rock until it is trapped below an impermeable layer of rock and accumulates to form a reservoir. Shales are often the source rocks for limestone and sandstone reservoirs that lay above them. Shales can be both source rocks and producing reservoirs.
Trip - A trip is the movement of all of the drill pipe or tubing either into or out of a well. “Tripping Out” means pulling all of the drill pipe or tubing out of a well. “Tripping In” means running all of the drill pipe or tubing that is on surface in to a well. Tripping may be performed during drilling operation to change the drill bit if it has become excessively worn. Tripping may be performed during a workover to replace a joint of tubing that has developed a hole in it.
Water Drive Oil Reservoir - In a water drive oil reservoir, there is a large water reservoir below the oil reservoir and it pushes against the oil and displaces it like a piston. The pressure from the water below acts on the oil and pressurizes it to equal the water’s pressure at the oil-water interface. When the wellbore is perforated, the water begins to push the oil toward the wellbore. If the wellbore perforations are only in the oil zone and completely above the water, the initial production may be at or near 100% oil. Over time some of the water will begin to “finger through” in homogeneities of the oil zone where the relative permeability of water is higher. Eventually some of this water will “break-through” and be seen in the produced fluid along with the oil. From that point forward, the production will include both oil and water. The production rate of oil will decline exponentially over time. Roughly 80% of all wells have a production decline rate that is between 12% and 30%. A 12% exponential decline rate means that each year a well produces 88% of the amount of oil that it produced in the preceding year. A 30% exponential decline rate means that each year a well produces 70% of the amount of oil that it produced in the preceding year. All other things being equal, an oil reservoir with a water-drive mechanism will have a lower (better) decline rate and a higher ultimate recovery than an equivalent reservoir with any other drive mechanism. Water-drive is the most efficient drive mechanism for producing oil.
Wet - A wet formation is a formation with pore space that is 100% saturated with water. Oil and gas cannot be produced from wet zones because wet zones do not contain oil or gas. Porous wet zones containing saline formation water tend to have relatively low resistivity.