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HomeMy WebLinkAbout14 - Oil Field Operation ImprovementsAugust 22, 2000 CITY COUNCIL AGENDA ITEM NO. 14 TO: Mayor and Members of the City Council FROM: Public Works Department SUBJECT: OIL FIELD OPERATION IMPROVEMENTS — WATER INJECTION TEST AND ESTABLISHMENT OF THE OIL AND GAS RESERVE DESIGNATION FUND RECOMMENDATIONS: 1. Authorize improvements to oil field production through injectivity tests that may lead to a waterflooding program. 2. Authorize the purchase of one Wemco Mechanical Flotation Unit from Separation Specialists, Inc., of Bakersfield, California, for the amount of $50,000. 3. Establish an Oil and Gas Reserve Designation Fund for the Future Abandonment of the City's oil wells. DISCUSSION: The City currently operates 16 oil wells in West Newport that produced approximately 42,246 barrels of oil last year. Production has been declining and for the field to continue to operate, methods to increase production need to be pursued. In the FY 2000 -2001 Capital Improvement Project Budget, the Council has approved $200,000 to be expended on improvements to the City's Oil and Gas operations. The work to be performed this year will be the second phase in the City's multi -phase program designed to improve the pumping efficiency of each well, and increase production. Council is requested to authorize staff to proceed with the second phase, which includes an investigation of waterflooding oil layers, through a water injection test. The initial injection test is estimated to cost between $150,000 and $200,000. The test will yield results that will enable the Council to decide if a waterflooding program will increase production or if the current operation should continue until production decreases to the point where it is no longer economical to operate the oil wells. In May 1999, the City began a multi -phase Oil Well Rehabilitation Program. The Contract Operator and Petroleum Consultant recommended which of the wells would be the best candidates for the initial rehabilitation program. Several wells were evaluated in detail to determine the potential for recompletion in alternative oil bearing zones. Each well's completion history, electrical log, and historical production were SUBJECT: Oil Field Operation — Water Injection Test and Establishment of the Oil and Gas Reserve Designation Fund August 22, 2000 Page 2 evaluated for productive potential in oil layers that could be added to present producing layers. After an initial video inspection of several well casings, it was determined that some of the wells needed to be cleaned or repaired before they could be recompleted. Well Nos. 12, 11, 9, and 5 were selected as the first to be cleaned and /or repaired. The video inspection revealed that significant sections of well casing perforations were plugged by encrustation of minerals. The cleaning process removed the encrustation. Overall, each of the services performed at the wells increased total fluid production without substantially increasing oil production. This service was necessary to prepare the wells for the next step of pressurizing or waterflooding the underground oil reservoir. Based on a report by the Petroleum Consultant, an alternate method was recommended to increase oil production through the implementation of a waterflood program. Projections indicate the current oil production can be increased substantially. The cleaning of the above four wells indicates the additional oil in the sand layers needs to be pressurized in order to increase oil production. Waterflooding is the least expensive alternative to increase oil production. Waterflooding involves the pressurized injection of water (usually salt water) into the oil - producing layers. The net effect is a pressure increase and stabilization of pressure in the oil sands. This causes more oil to flow to the producing well locations. The recommended second phase will perform an injection test to determine if the waterflood will be economically feasible. To perform this injection test, additional equipment and service is needed. A breakdown of the components is listed below. Wemco Mechanical Flotation Unit $ 50,000 Pipeline and filter 15,750 Well service (4 days @ $2,000 /day) 8,000 Geological Consultant 15,000 Tank farm retrofit 25,000 Valve, meter and tank fittings 19,000 Electrical services 20,000 Sub -total $152,750 Contingency (30 %) 45,825 Total $198,575 The funds are available in Account No. 7231- C5400053 for this project. It will take at least a year for the injection test results to be determined and evaluated. If the results of the test prove that production may only improve slightly or stay the same, the injection system can be used to dispose of wastewater being produced under current operation. This would save about $40,000 per year in disposal costs. SUBJECT: Oil Field Operation —Water Injection Test and Establishment of the Oil and Gas Reserve Designation Fund August 22, 2000 Page 3 If the results of the test show a significant increase in production an expanded program will be evaluated. To proceed with the second phase it is requested that the Council approve the purchase of one Wemco Mechanical Flotation Unit from Separation Specialists, Inc. of Bakersfield, California. Staff requested proposals in an Oil Trade Magazine and received three quotes. The lowest quote was from Separation Specialists, Inc., for $50,000 and will provide the full- service unit and warranty. The other two quotes did not include the same level of service and warranty as the low bidder. Oil and Gas Designated Reserve Fund Oil and gas field production has a limited life. It is estimated that the City's oil and gas production will only last for another 15 to 20 years. When production in a well ceases, it must be properly abandoned at a cost of approximately $40,000 per well. It is recommended that an Oil and Gas Designated Reserve be established in the Tide and Submerged Land Fund to build a reserve that will provide funding to abandon wells and facilities as they go out of service. It is also recommended that $40,000 per year be set aside from the oil field production revenue to fund this reserve. In June, the City Council Oil and Gas Committee met with Public Works staff, the oil field operator, and a geologist to review the proposals described in this report. Council members Debay and Ridgeway are on this committee and concurred with the recommendations that have been made. Respectful) submitted, PUBLIC WORKS DEPARTMENT Don Webb, Director By: Idon Davidson Utilities Services Manager Attachment: Site plan showing well locations � LL. a - o IQ a IQ k 3 IL E o aW J N 3 •.9 J O W U O Y .4 U 4 U n Q 1