If you are thinking of investing in oil, this article aims to give you some background information before making an investment decision. It looks at the origins of oil, the process of oil exploration and oil field development.
The origins of oil as a commodity
Oil originated from the decomposition of plant and animal material in river beds and sea beds. Thick sediments and heat from the earth’s core baked their remains into oil between 65 and 180 million years ago.
Today, that oil and gas occurs in the pores of porous sedimentary rocks thousands of metres below the earth’s surface. Such rocks are subject to enormous pressures from the weight of the overlying rock. When drilled in to, this pressure forces out the oil, similar to squeezing out a sponge.
How does oil exploration work?
The first stage of oil exploration is to discover the location of oil containing sedimentary rocks.
Surface mapping along with magnetic and gravity readings provide valuable data; and seismic surveys in which sound echoes reflected from small explosions can often pinpoint the most likely locations.
In offshore locations, hydrophones can be used to map the sedimentary layers buried deep below the ocean.
Once likely locations of oil have been discovered, the only real way to establish if they do contain oil is to drill an exploratory well into them. Exploratory wells are called wildcat wells and are enormously high-risk and expensive, with drilling costs potentially running into millions of dollars.
Even with all the preparation, there is on average just a 30% chance that a wildcat well will actually strike oil.
Oil exploration leading to oil field development
Once an exploratory well hits oil, it is called a discovery well. The next stage is to assess the size of the oil field by drilling additional discovery wells at strategic locations to map the oil field.
Once the nature of the field has been established, development wells are drilled to maximise the field’s potential yield. These wells are then completed by installing equipment and pipelines to control the flow and collect the oil, moving it to a central location.
Over a period of time, the pressure of the oil delivered by the wells will fall. To maintain oil flow, water is injected into the wells to keep up the pressure.
Oil and gas industry
To learn more about the oil and gas industry, please click here.
