Economics of Water Flooding

Abstract

Abstract Water flooding has progressed from the haphazard experimental stage through numerous phases to a somewhat precise engineering achievement. Unfortunately the economics, which are dependent on so many variables, have not yet lent themselves to particularly accurate interpretations. Recognizing that technical studies are proceeding rapidly, there still are divergent schools of thought. Regardless of divergences of opinion, the first step in any proposed project is a complete engineering study, evaluated in the light of past experience. The economics fundamentally boil down to the component parts of the following simple formula: Expected Gross Revenue less The Summation of Computed Acquisition Costs, Costs of Development, and Operating Costs (over the life of the flood) equals Estimated Gross Profit. Estimated Gross Revenue can be fairly reliable determined from the initial engineering study. Acquisition costs must be based upon the true value of the property and are always subject to negotiation. Development costs are influenced by many factors, but are largely controlled by the depth and the spacing used. They can be estimated with reasonable accuracy once the spacing program has been adopted. Operating costs ]do not lend themselves to ready determination because of the variables involved, but reasonably accurate estimates are possible. There is no substitute for experience. Approximately seven out of 10 waterflood attempts are failures. It is just as important to determine basic causes of failure as it is to study successful floods. Good floods are widely publicized, the poor ones never. Most of these failures can be attributed to improper engineering, lack of experience, or shortage of working capital. Engineering and economics are inseparable, and a proposed flood, based on sound engineering, must meet heavy financial demands. While waterflooding is often considered one of the safest of oil ventures, it, too, can be hazardous. "First results" are often long delayed, and pay out is invariable slow. The conclusion is inescapable that successful waterflooding requires three basic essentials: engineering, experience, and economics.