The Grieve July production and injection figures have been...

The Grieve July production and injection figures have been released by Denbury via the Wyoming Oil and Gas Conservation Commission (WOGCC).  They contain good and bad news:

GOOD NEWS
The production for July trebled that of June. If this rate of increase in production continues, Brad will exceed his forecast of 2,100 BOPD by the end of 2018. If Elk could shed some light on the August additions of oil to the export pipeline they own and operate, we might have some idea of the August production trend rather relying on Denbury or waiting until late September for the WOGCC to publish Grieve’s August figures.

The other good sign from the Denbury July data is the decline in the volume of produced water and hence the marginally lower water cut figures for each of the producing wells.

Denbury injected more than 1 billion cubic feet of CO₂ in July. At a conservative delivered cost of US$1.00 per thousand cubic feet, that is more than US$1 million investment by Denbury at no cost to Elk. Denbury must be confident about the future EOR outcome at Grieve.

In July, Denbury started production from Grieve #7 the highest historical oil producer in the field and the nearest well to an advancing front of miscible phase fluid (CO₂ and oil). The 31 days production resulted in a recorded 642 barrels of water and no oil or gas suggesting the miscible phase has yet to reach Grieve #7. The fact that no gas production was reported in any well for July would indicate that the benefit from the CO₂ flood has yet to occur (i.e. the good news (?) is that we have yet to see the EOR effect and the current increase in crude production is from conventional oil mobility in the reservoir.)

BAD NEWS
Either the Denbury’s figures submitted to WOGCC are not factual and/or those at Denbury responsible for managing Grieve’s operation and reporting to WOGCC need to explain:

1.  The difference between the injected volumes of fluid (water and CO₂) since the start of production in April and the produced volumes of fluid (oil and water) in that period.  The difference in the volume of injected fluids to produced fluids is 1.8 million barrels over the 4 months of producing operations.  This equates to a significant increase in reservoir pressure or a considerable loss of fluid to the aquifer or both.

2,  Why nearly 70% (about 750 million cubic feet or 340,000 barrels at reservoir conditions) of 1.115 billion cubic feet (500,000 barrels) of CO₂ was injected in July in some of the lowest wells in the Grieve reservoir? This is NOT a good gravity stable flood strategy for an effective sweep of the Grieve reservoir which fortuitously, by its dipping structure, is ideally suited for such a flood.  CO₂ at Grieve reservoir conditions is less dense than Grieve oil and certainly less dense than water.  The schematic diagram contained in Elk’s July 31 “2018 Guidance & Grieve Update” depicts how injection of CO₂ in up dip wells provides an effective and controlled sweep of the reservoir. Injecting large quantities of CO₂ in wells low on the structure appears to be contrary to what Denbury had implemented in the years of  re-pressuring the reservoir  and could result in some or all of a significant volume  of miscible phase fluid (CO₂ and oil) being lost from the reservoir depending on which driving force prevails: gravity (lighter fluid rising) versus imposed pressure (reservoir pressure now greater than that of the supporting aquifer).

3.  Why 20,000 barrels of water of the 425,000 barrels injected in July was injected in some of the highest wells on the structure?  This again appears to be at odds with a good gravity stable flood practice.

4.  How Grieve #5 a down dip producer that made 18 barrels of pure oil in 28 days of June (<1 BOPD) made 22,723 barrels of pure water in 31 days of July (733 BWPD) production - and no oil?

5.  Why no produced gas was reported for the field for July although we are assured CO₂ is being recycled?

6.  Why 1,000 barrels of oil were transferred to the export pipeline on August 1 when only 997 barrels had been produced? The numbers are close but it would be a stretch to believe that an operator would drain the last barrel from storage to start to fill a pipeline that has 11,000 barrels capacity.

7.  The missing produced water from earlier months appears to have been found and injected in wells in July. The photographs of the Grieve facility do not appear to include large water  storage for the missing water so was 425,000 barrels really injected in July and if so, what was the source?

Perhaps one day soon, Denbury and/or Elk will provide shareholders of both companies with the results of their Grieve reservoir simulation work and explain where an extra 1.8 million barrels of injected fluid went,  what is the forecast production profile for the field and how is recent production (oil, water and gas) tracking against that forecast. The simulation outputs could be provided with appropriate disclaimers.  It would be interesting to see how 340,000 barrels of CO₂ being injected in wells very low on the structure and 20,000 barrels of water injected up-dip in Grieve’s original gas cap benefitted the forecast and demonstrate that a large volume of miscible phase fluid was not lost from the reservoir.