Page 36 - Introduction to Petroleum Engineering

20 INTRODUCTION

and is typically a very low magnitude seismic event known as a microseismic event.
Water injection into disposal wells can lead to seismic events, and possibly earthquakes
that can be felt at the surface, in a process known as injection‐induced seismicity
(Rubinstein and Mahani, 2015; Weingarten et al., 2015). King (2012) has provided an
extensive review of hydraulic fracturing issues associated with oil and gas production
from shale. Concern about environmental effects has led some city, county, and state
governments in the United States to more closely regulate shale drilling and production.
Oil spills in marine environments can require expensive cleanup operations. Two
such oil spills were the grounding of the 1989 Exxon Valdez oil tanker in Alaska and
the 2010 explosion and sinking of the BP Deepwater Horizon offshore platform in
the Gulf of Mexico. Both incidents led to significant financial penalties, including
remediation costs, for the companies involved. In the case of the BP Deepwater
Horizon incident, 11 people lost their lives. The Exxon Valdez spill helped motivate
the passage of US government regulations requiring the use of double‐hulled tankers.

Example 1.7 Environmental Cost
A. A project is expected to recover 500 million STB of oil. The project will
require installing an infrastructure (e.g., platforms, pipelines, etc.) that
costs $1.8 billion and another $2 billion in expenses (e.g., royalties, taxes,
operating costs). Breakeven occurs when revenue = expenses. Neglecting
the time value of money, what price of oil (in $/STB) is needed to achieve
breakeven? STB refers to stock tank barrel.

Answer
Total expenses = $3.8 billion
Oil price = $3.8 billion/0.5 billion STB = $7.6/STB
b. Suppose an unexpected environmental disaster occurs that adds another $20
billion to project cost. Neglecting the time value of money, what price of
oil (in $/STB) is needed to achieve breakeven?

Answer
Total expenses = $23.8 billion
Oil price = $23.8 billion/0.5 billion STB = $47.6/STB

1.6 ACTIVITIES

1.6.1 Further Reading

For more information about petroleum in society, see Fanchi and Fanchi (2016),
Hyne (2012), Satter et al. (2008), Raymond and Leffler (2006), and Yergin (1992).
For more information about reservoir management and petroleum economics, see
Hyne (2012), Fanchi (2010), Satter et al. (2008), and Raymond and Leffler (2006).