There are several separate phases in the life of a potential offshore oil field. Industry activity begins with the announcement that licences to explore for oil are to be awarded by a country's government, and culminates with a project coming on stream and beginning to produce supplies of the world's primary raw material and energy source.
The process is roughly divided into five phases: the initial licensing round, exploration, appraisal, development and production. At each stage a number of essential criteria must be met and approved by the licensing authority, with particular regard paid to the vitally important issue of environmental protection.
The licensing round
The search for oil begins once the government of a country announces that it intends to offer oil companies the right to prospect in a part of its territorial waters. A map of the area of ocean in question is divided up into tranches and blocks, each of which is offered up for tender to oil companies. Fees and acreage rental must be paid for each block, and later -- often many years later -- if oil is found and produced, taxes and royalties on the proceeds must be paid.
Exploration
The exploration phase begins with the gathering of data on rock formations, miles below the surface of the earth, which geologists suspect could contain trapped reservoirs of oil. Specific information on these geological structures is obtained through seismic surveys -- a process explained later in this briefing.
If the seismic data seems to show that oil reservoirs may be present far beneath the seabed, the next part of the exploration phase involves a series of further surveys. The industry needs to gather information about the nature of the seabed surface, ocean conditions, weather conditions and -- most importantly -- any potential effects on marine wildlife and plant life. Once this data has been obtained, collated and analysed, the decision is taken whether to proceed further.
If the conditions are right to continue with the project, the next stage is to drill an exploration well down into the rock formations beneath the seabed. Once an exploration or wildcat well reaches the geological layer believed to hold oil, the first well test reveals whether oil is present. In the majority of cases the exploration well turns out to be a dry hole, devoid of oil to any significant degree. Sometimes oil is found, but in quantities or of a consistency which mean it would not be commercially viable to extract it.
Appraisal
If an exploration well yields positive results, the next stage of industry activity is to drill a number of appraisal wells at different points in the seabed to establish the size and structure of the reservoir and identify the recovery factor -- the likely proportion of the oil present that could be extracted. Once this data has been obtained and analysed, the decision must be taken whether to develop the field. This depends on numerous factors, including the estimated future oil price at the time the project would be expected to come on stream, and the cost of assembling the infrastructure needed. The exploration and appraisal stages can last many years, at a cost to the industry in the billions of pounds, with no guaranteed financial returns for the companies involved.
Development
If the field appears to be commercially viable, the next stage is the development phase. Oil companies must design, test, install and evaluate all the equipment required to extract oil from the reservoirs far beneath the seabed. Very large and complex pieces of equipment -- up to hundreds of feet in length and thousands of tonnes in weight -- must be specially adapted to meet the requirements of the new development, or constructed from scratch. This can be an extremely expensive and protracted process. Meanwhile further studies of potential environmental sensitivities must be undertaken, and approval sought from the licensing authority.
Production
Once the first production wells are drilled down through the subsea rock into the oil reservoirs, the production phase begins and the project comes 'on stream'. A number of production wells are drilled to access as high a proportion of the field reserves as possible. The natural pressure within the reservoirs forces the oil up the wellbore, allowing it to be delivered to an offshore production facility on the sea surface, or -- via an underwater pipeline -- to a production facility onshore.
Economic significance of the oil industry
If oil is found and produced successfully, there are considerable economic benefits for the country whose government issued the exploration and production licences. The UK offshore oil industry has been a major contributor to the UK economy for 30 years. During that period it has:
- Paid £150 billion in tax
- Made investments totalling £150 billion
- Currently provides employment for 382,000 people in more than 5,000 companies
- Contributed 20% of the UK's total industrial development in each of the last 5 years
The industry currently contributes on average £16 billion to the UK economy and £3.5 billion to the Exchequer each year. Britain's offshore oil and gas industry is also a world leader in the development of innovative new technologies for use in UK waters and for export.
Exploration Index
