The drilling process in Arrow Crude's preferred Kentucky
Area of Operations generally consists of four phases:
Specifically the Preliminary Administrative Phase
The Drilling Phase
The Completion Phase
Final Administration Phase.
- Preliminary Administrative Phase
CURRENT CONDITIONS AND TRENDS IN KENTUCKY
The state of Kentucky is very diverse in its geological structure. The oldest formations in the state occur in central Kentucky where structural events have caused older rocks to be lifted along a domal structure called the Jessamine Dome which is located along an elongated north-trending structural flexure called the Cincinnati Arch. The Cincinnati Arch extends from Cincinnati, Ohio, through Cumberland and Monroe Counties in southern Kentucky which are in a region called the Cumberland Saddle.
SCOUT, NEGOTIATE AND ACQUIRE LEASEHOLD
Oil Landmen research and locate available property in South Central Kentucky historically known to have potential for oil production. Negotiations for desired areas are then entered into with property (mineral right) owners subsequently resulting in the securing of leaseholds for future development. Items that are negotiated and established include cost per acre, percentage of overriding royalty interest (the percentage the owner will receive), limitations on location placements, costs of locations and surface damage expenses among others.
Geological and surface maps are used and are a very integral component of well placement. Since the majority of the wells drilled are true offsets of past or current producing wells, maps serve as a tool in developmental drilling as opposed to wild catting which is drilling in an area where production has yet to be discovered or the closest well is too far away to be classified as an off-set.
Professional land surveyors then survey and stake the selected well site. Surveying ensures that we meet the spacing requirements outlined by the Kentucky Division of Oil and Gas and the rules and regulations thereof. DRILLING PERMITS (per well with Division of Oil and Gas) The driller files permits with the Kentucky Division of Oil & Gas (D.O.G.) for authorization to begin drilling on the proposed location. The approval process is approximately 14 days from the time the driller files for permits, however can take longer if special spacing requirements or permitting is needed. Once the driller receives the permit from the D.O.G., drilling can begin.
2. Drilling Phase
DRILLING OPERATIONS COMMENCE
This includes building the pad for the drilling rig, delivery of equipment required for drilling operations, drilling the rat hole and setting the surface pipe. The surface casing is cemented into place protecting the water table from any potential contamination. Additional site-specific steps are also often encountered until lastly before actual drilling commences, excavation of the reservoir pit is completed.
WELL DRILLING PROCESS
Drill pipe ‘sticks’, ‘rods’, or ‘stems’, are added piece by piece as the drill bit burrows deeper and deeper into the ground. This continues until targeted depth is reached, typically less than 2,200 feet. During drilling operations, the driller will take samples of each well-known productive formation as it is encountered. Often oil will eliminate or ‘kill’ the drill dust from the limestone formation (if oil is present) and begins to blow through what is called the ‘blewy’ tube. At this time, the driller and company make the determination to continue to drill to a deeper level or to stop and evaluate. It is also at this point that a possible determination that the well is a dry hole which will be plugged and abandoned may be confirmed.
3. Completion Phase (the following only applies to producible wells)
VIDEO INDUCTION LOG
Once a well has been determined as a potential producer and the completion phase is chosen, then a camera logis performed using a camera inside the well bore hole. This will show conditions down-hole and where ‘breaks’ are in the oil bearing structure as well as where to administer any treatments that may be needed. Additionally, if a determination cannot be made by video alone, duel density gamma ray induction logs may be necessary to measure the permeability or porosity of a well.
SET PULLING UNIT ON LOCATION
A ‘Pulling Unit’ is set up on location which is used primarily for pulling and placing the production tubing, rods and down-hole pumps into the wellbore at or below the producing formation. Typically it remains on location until the well is placed ‘into production’ and is on its normal production cycle. If additional work is required such as acid stimulation or nitrogen fracturing, the pulling unit will remain for those procedures.
NITROGEN FRACTURING / ACID STIMULATION
If the well drilled is deemed successful, nitrogen fracturing or acid stimulation may be required to assist in keeping the formation open or simply to break open the formation and allow more fluids to flow through the fractures and into the well bore. Inside the monitoring vehicle, engineers determine the precise amounts of nitrogen and acid to be used and to what pressure and rate it will be injected (number of barrels or barrels equivalent per minute) into the well bore.
Upon a successful treatment with acid and/or nitrogen, a determination is then made regarding whether a new well may flow naturally or require a pump-jack for lifting purposes. If a pumping unit is required (in most all cases they are), the pulling unit will swab back any acid left in the hole.
PUMPING UNIT PLACED AT WELL SITE AND PLUMBED IN
The down-hole production assembly, which consists of production tubing, a down-hole pump and sucker rods that are connected to the pumping unit ‘pump jack,’ is now placed above the well bore. The production/tubing pipe allows the pump to pull oil into the tubing in a ‘suction and discharge’ fashion. After the down-hole production assembly is attached to the pump jack, the roustabout crew ties in (plumbs) the well head and pumping tees for preparation to finalize the connection of the well to a storage tank assembly. As the pump strokes upward it creates suction pulling fluid into the tubing and on the down stoke, the pump will push the fluid to the surface out of the well head and into the holding tank (tank battery) where it is stored for eventual transport.
As part of putting the well ‘into production,’ electricity is brought to the well site. It will be connected to the pump jack motor when the equipment is ready for the connections. If necessary, gasoline motors will temporarily be used.
TUNING THE WELL
The pumping unit is then set at an estimated rotation speed which is the first stage of ‘tuning in the well.’ This process is a series of different combinations of rotations, timer schedules and stroke lengths and can take some time to achieve desired production.
STORAGE TANK PLACEMENT
The tank battery which has been placed near the well site, is connected by hose and linked with the pump jack. The tanks receive and store the oil until a load is ready for transport. A field specialist (Pumper) gauges the daily fluid levels, checks equipment status, greases fittings, oils crank cases and monitors the wells and tanks on a routine basis.
FILE COMPLETION OR PLUGGING REPORTS
A completion report or plugging report is filed to notify the Division of Oil & Gas that the drilling phase of the well is completed and confirming that the well is a producing well or that it has been plugged and abandoned as a dry hole (see above WELL DRILLING PROCESS section).
4. Final Administration Phase
MANAGING GENERAL PARTNER ISSUES ASSIGNMENTS OF INTEREST
Administrative staff draws up, executes and records Assignments of Interest in the appropriate courthouse. This process divides the interests of the producing well among the appropriate parties.
DIVISION OF INTEREST AND TANK NUMBERS
The storage tanks are numbered and logged by the purchaser for proper division of the oil revenues.
OIL TRANSPORTED TO REFINERY
The purchaser picks up the oil from the storage tanks and gauges fluid levels before and after draining which gives an accurate measurement of fluids removed from the tank. The transport company then leaves a receipt known as a ‘Run Ticket’ with the pumper who assists the driver and confirms the before and after gauges.
PURCHASER ACCOUNTING PROCEDURES
The purchaser records the tank number, the assignments, and the correct mailing information for revenue distribution then sends the Managing General Partner a division order (DOI), to approve for accuracy. The MGP then endorses the DOI and returns it to the purchaser. Once oil has been picked up by the transport, it is taken to the purchasers holding facility. The purchaser typically pays based upon the spot price of Plains Marketing’s monthly average. During the accounting procedures, the purchaser will deduct the ORRI, severance tax, transportation fees, shrinkage, condensation and other charges. Upon those deductions, revenues are then received which typically equate to approximately eighty five percent of the spot price average for that month.