Identifier
Created
Classification
Origin
10RIYADH1
2010-01-03 07:13:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Riyadh
Cable title:  

CHEVRON INAUGURATES LARGE SCALE STEAM INJECTION

Tags:  EPET ENRG ECON PREL SA KU 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHRH #0001/01 0030713
ZNR UUUUU ZZH
P 030713Z JAN 10
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 2157
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
INFO RUEHHH/OPEC COLLECTIVE
RUEHJA/AMEMBASSY JAKARTA 0240
UNCLAS RIYADH 000001 

SENSITIVE
SIPDIS

DEPT FOR NEA/ARP AND EEB/ESC/IEC

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL SA KU
SUBJECT: CHEVRON INAUGURATES LARGE SCALE STEAM INJECTION
PILOT PROJECT IN SAUDI-KUWAITI PARTITIONED NEUTRAL ZONE

Summary
-------

UNCLAS RIYADH 000001

SENSITIVE
SIPDIS

DEPT FOR NEA/ARP AND EEB/ESC/IEC

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL SA KU
SUBJECT: CHEVRON INAUGURATES LARGE SCALE STEAM INJECTION
PILOT PROJECT IN SAUDI-KUWAITI PARTITIONED NEUTRAL ZONE

Summary
--------------


1. (U) Ambassadors Smith and Jones, and Dhahran Consul
General Kenny, participated in the inauguration of Chevron's
large scale steamflood pilot project at the Wafra field in
the Saudi Arabia-Kuwaiti partitioned neutral zone November 4.
Saudi Minister of Petroleum and Mineral Resources Ali
Al-Naimi, Kuwaiti Minister of Oil and Information Sheikh
Ahmed Al-Sabah, and senior Chevron officials also
participated. Saudi Arabian Chevron was presented as a
successful company with a 90% Saudization rate (higher than
Saudi Aramco). The substantive presentations focused on the
project's high technology aspects but acknowledged that not
all technical problems have been resolved. This was our
first visit to the site since Saudi Arabia renewed Chevron's
concession in July 2008, which now will expire in 2039. End
summary.

The project
--------------


2. (SBU) According to Chevron, the Wafra Large Scale Pilot
(LSP) project, which began operating in June, is designed to
determine the technical and economic viability of
thermal-recovery projects in the field's Eocene heavy-oil
carbonate (i.e. limestone) reservoir. Steamflooding involves
injecting steam into heavy oil reservoirs to heat the crude
underground, reducing its viscosity and allowing its
extraction through wells. Using this technology in a
carbonate reservoir is technically demanding because the rock
is naturally fractured making it hard to predict how injected
steam or water will affect reservoir pressure, and the use of
steam in particular releases chemicals that lead to
degradation of oil production equipment. The project is a
greenfield site, in an existing field, and at this stage
involves 16 injection wells, 25 producing wells, and 16
observation wells, as well as water treatment, and steam
generation and distribution facilities. The company hopes
that the $340 million pilot will lead to full-field
steamflooding, marking the first commercial application of a
conventional steamflood in a carbonate reservoir anywhere in
the world. The LSP is over the Wafra field on the Kuwaiti
side of the Partitioned Neutral Zone (PNZ),in which the two

countries divide the oil revenues jointly.

Inauguration touts Saudi Chevron culture
--------------


3. (SBU) Saudi Arabian Chevron (SAC) President Ahmed Al-Omer
hosted visiting dignitaries and a few hundred Saudi Chevron
employees at the event, which took place in a large tent next
to the LSP facilities. The program touted Chevron corporate
culture, especially its focus on safety, and also showcased
its local subsidiary SAC as a successful model of Saudization
(Note: One Chevron manager told us 90% of SAC personnel are
Saudi, which is unusually high compared to many Saudi
companies and even higher than national oil company Saudi
Aramco.)


4. (SBU) Chevron states it is the only large international
energy company with a continuous upstream presence in Saudi
Arabia for more than seven decades. (Note: In addition,
Omer and several other managers at the inauguration are
holdovers from Getty Oil which operated the onshore PNZ
fields under a 60-year agreement renewed for 30 additional
years in 2008. Getty was taken over by Chevron in 2001, via
Texaco in 1984.)

Chevron VP: heavy oil production
expertise key part of company strategy
--------------


5. (SBU) George Kirkland, Chevron Executive Vice President
for Global Upstream and Gas, said primary recovery from Wafra
would only be 5% of the reservoir without this technology.
Steamflood will add years, and many millions of barrels, of
additional production capacity. Kirkland estimated there are
12 billion barrels of oil in the field's first Eocene layer,
so each additional 1% recovery equals 100 million barrels.
He estimated Wafra full field development would add an extra
billion barrels of recoverable oil. Although Chevron will
need to evaluate the results of the LSP before moving to full
field implementation, he estimated doing so would create
thousands of jobs.


6. (SBU) According to Kirkland, developing heavy oil

production expertise is a key part of Chevron's strategy.
The world has 4 trillion barrels of extra heavy oil. That's
four times conventional reserves, he estimated. In a
sandstone reservoir, steamflood technology has demonstrated
recovery rates of 50%. Chevron began using steamflood
technology in the 1960s at the Kern River field in
Bakersfield, California. That field had been producing since
the 19th century, and with this technology, Chevron has set a
recovery target for the field of an incredible 80%. It used
the technology in the Duri field in Indonesia to develop
major efficiency gains, also including non-thermal methods.
Chevron also developed downstream technologies to handle
heavy crude.

LSP success remains uncertain
--------------


7. (SBU) Project manager Leland Neblitt, noted that in
addition to the first Eocene reservoir's 12 billion barrels,
a second Eocene reservoir in the field contains an additional
5.4 billion. He emphasized that the technology being piloted
has great promise: primary recovery in a field like Wafra
can get 5-10% of the oil; water flood can get 15-25%; and
steamflood in sandstone can get 50-80%. However, using
steamflood technology in Wafra's carbonate (vice sandstone)
reservoir remains unproven. Small scale testing in previous
years resulted in scaling and corrosion on the pipes, as well
as iron sulfide deposits, that might drive up costs sharply
or pose technical hurdles to make full field implementation
uneconomical.

Saudi oil minister: Project
has "important implications"
--------------


8. (SBU) In a conversation with Ambassador Smith after the
inauguration, Saudi oil minister Ali Al-Naimi praised
Chevron's handling of the inauguration and the LSP, noting
that the project has several important implications. A
number of countries have significant reserves of heavy oil
that they cannot produce with available technology. Several
companies, like Chevron and Exxon, have experience using
steam to produce heavy oil in sandstone, but this will be the
first real test of production in limestone. He said the
company's projection that it might be able to increase the
current recovery rate from 7% to 20% would have a huge
impact. If the three-year trial is successful, Al-Naimi said
many other producers would be interested in applying it to
their fields, including Saudi Arabia, which has a very
similar field offshore in the Red Sea (Hasbah).


9. (SBU) Naimi said although serious technical challenges
remain, he was very confident based on Chevron's careful
planning and extensive coordination with Aramco engineers
that the LSP would be successful over its three year period.
He relayed that Chevron told him the project would be
commercially viable at any price over $40 per barrel, while
Saudi heavy crude was trading at $7-9 less than the WTI
benchmark. Naimi said his Ministry decided that Chevron
deserved this project without having to bid on it separately
because of its long partnership with the Kingdom, which
stretches to the very beginnings of oil production here. He
said the two sides had negotiated a very good deal that would
work for both.

Comment
--------------


10. (SBU) Chevron's project is significant not only for
potentially adding reserves to Saudi and Kuwaiti capacity,
but also for the opportunity to prove a technology that could
increase recovery rates in fields in the region and around
the world. The fact that Saudi Arabia chose Chevron to
pursue this project based on its long history of cooperation
in the Kingdom and its clear interest in being a long-term
partner is a useful demonstration of the value of continued
strong energy ties between the United States and Saudi
Arabia. We do not want to make too much of Al-Naimi's
comment, although it is noteworthy that he suggested the
Kingdom might be interested in applying this technology to
other fields beyond the neutral zone, which would be the
first foray for IOC's into Saudi oil production since the
Saudi upstream oil sector's nationalization.


11. (U) Embassy Kuwait cleared this cable.
SMITH