To locate hydrocarbon accumulations, operators look for visible surface features such as oil seeps, natural gas seeps, pockmarks (underwater craters caused by escaping gas) provide basic evidence of hydrocarbon generation (be it shallow or deep in the Earth). However, most exploration depends on highly sophisticated technology to detect and determine the extent of these deposits using exploration geophysics. Areas thought to contain hydrocarbons are initially subjected to a gravity survey, magnetic survey, passive seismic or regional seismic reflection surveys to detect large-scale features of the sub-surface geology. Features of interest (known as leads) are subjected to more detailed seismic surveys which work on the principle of the time it takes for reflected sound waves to travel through matter (rock) of varying densities and using the process of depth conversion to create a profile of the substructure. Finally, when a prospect has been identified and evaluated and passes the oil company’s selection criteria, an exploration well is drilled in an attempt to conclusively determine the presence or absence of oil or gas.
In the first phase of the life cycle of oil and gas operations, operators evaluate the hydrocarbon-production potential of a formation in the exploration phase to determine if the reservoir will produce oil or natural gas in an economically profitable way. After exploration, operators must select sites for oil and gas production. Site selection is closely tied to leasing and permitting, because even a perfectly planned site cannot be drilled without an appropriate lease and the required permits. The process of site selection includes evaluating available drilling technology, geological characterization, wildlife habitat evaluation, storm water management, traffic and pipeline logistics, and reclamation planning.
Some of these site selection considerations are regulated and some are unregulated. In the United States, the oil and gas leasing process is not regulated and takes the form of a legal contract between the landowner (known as the lessor) and the operator (known as the lessee). The ultimate goal of the leasing process is to produce an agreement between a landowner and an operator in which mineral rights are leased to the operator in exchange for a recurring rental payment and royalties from any oil or gas produced on the land. This influences site selection as mentioned above since the operator relies on a successful lease negotiation to enter into the permitting process for production from a particular reservoir.
Major points in a lease include the description of the property, the term (duration), and the payments to the lessor. A lease remains in effect for a certain period of time, called the primary term, as long as the lessee pays the annual rental. The lease expires after the primary term, unless drilling or oil and gas production has started on the lease. If production is established, the lease will remain in effect past the primary term, as long as the lease continuously produces oil or gas. The lease can, however, be revived by virtue of delay rentals. Delay rentals are fees paid to the lessor, to delay production or commencement of drilling, without terminating the lease. There are other clauses that also revive the lease.
Payments to the lessor typically take three forms: bonus, rental, and royalties, as negotiated between the parties. The bonus is an up-front payment made at the time the lease takes effect. The rental is an annual payment, usually made until such time as the property begins producing oil or gas in commercial quantities. The royalty is a portion of the gross value of any oil or gas produced from the lease that is paid to the mineral owner. It is not a portion of profits, for it is paid without deducting costs of drilling, completing, or operating the well. Whether or not the operator can deduct costs of treating, transporting, or marketing the oil and gas, if not specified in the lease, has been a matter of legal dispute. The traditional royalty rate for oil and gas in the United States was one-eighth (12.5 percent), although today it is often higher. Some states, such as Pennsylvania and West Virginia, have set the legal minimum royalty for private oil and gas leases to one-eighth.
Permits in the United States are regulated on the state level. State agencies are responsible for permitting on private and state owned lands. On federal lands, the Bureau of Land Management (BLM) is responsible for permitting. Oil and gas developments on tribal lands are permitted by the tribal government. Each state’s regulations are affected in turn by federal environmental regulations, which place requirements on operators through various environmental laws. Permit applications always contain geographic information, which is used to make sure that the drilling operations will comply with regulations affecting well spacing and buffer spaces between drilling operations and critical infrastructure and resources such as streams, wetlands, inhabited structures, water wells, and existing oil and gas wells. Since abandoned wells can serve as conduits for oil and gas, they should also be taken into consideration even though laws cataloging and mapping abandoned wells have yet to be passed in most states. In some areas of the United States, unmapped or forgotten mines can also interact with oil and gas wells potentially causing problems for operators if not properly assessed.
From an environmental standpoint, oil and gas production affects not only the landscape and the hydrosphere as previously explained in this course, but also the biosphere. Road and pad construction impacts wildlife habitats and can lead to habitat fragmentation. Traffic and noise have impacted migratory behavior. On the other hand, the transportation of water and equipment relating to oil and gas operations increases the risk of introducing invasive species.
The impacts to surface water and groundwater form the bulk of the first part of this course, but the potential impacts from spills and runoff are also important. Topography and climate play a role in selecting production sites. Operators constructing sites in wet climates must be prepared with a strategy for all surface runoff both during construction and operations to prevent soil erosion or other chemicals from reaching water supplies. Considerations for groundwater extend beyond pad construction, drilling and production even after plugging and abandonment. An analysis of the site’s geology allows proper plugging design to mitigate the risk of subsurface hydrocarbon migration.
Environmental challenges accompany all industrial operations including oil and gas production. However, certain site-specific factors can magnify these risks and hazards. Avoiding extreme environments, such as wetlands, deserts and arctic habitats, helps to mitigate the environmental risks of operations, because these risks are more extreme in these vulnerable habitats. If these kinds of sites are selected, a critical approach evaluating water, air, land, wildlife and human impacts can help to mitigate environmental risks associated with every stage of the life cycle of oil and gas development.
Images: “Oil industry equipment” by huyangshu via Shutterstock
