California Resources Corporation has a proven track record of successful exploration and development using primary, waterflood and steamflood recovery methods.
Production of oil and natural gas requires energy to lift the fluids from the oil and gas reservoir deep underground to the surface. The reservoir's natural pressure provides much of this energy but is eventually supplemented by artificial lift equipment. As oil and gas is produced, the reservoir’s natural pressure is reduced. This pressure can be restored by injecting recycled water or gas to mobilize and displace additional oil and gas into production wells. Even after applying these improved oil recovery (IOR) techniques, a large quantity of oil and gas typically remains in the reservoir. Enhanced oil recovery (EOR) techniques such as injection of steam or carbon dioxide can allow more of the oil in the reservoir to flow into production wells. By producing oil and natural gas with IOR and EOR techniques, we extend the lives of mature fields and maximize the efficient use of existing infrastructure and land surface.
We determine the development method to use based on geologic characteristics of the oil and gas reservoir and its reserves potential and expected returns. We seek to optimize our assets by progressively implementing primary recovery methods, which may include well stimulation and artificial lift techniques, IOR methods such as waterflooding and EOR methods like steamflooding, using both vertical and horizontal drilling. All of these techniques are proven technologies we have used extensively in California for many decades.
Primary recovery is a reservoir drive mechanism that utilizes the natural flow of the oil and gas formation and is the first technique we use to develop a conventional reservoir. Our successful exploration program continues to provide us with primary recovery opportunities in new reservoirs or through extensions of existing fields. Our primary recovery programs create future opportunities to convert these reservoirs to waterfloods or steamfloods after their primary production phase.
Some of our fields have been partially produced and no longer have sufficient energy to drive oil to our producing wellbores. Waterflooding is a well understood process that has been used in California for over 50 years to re-introduce energy to the reservoir through water injection and to sweep oil to producing wellbores. This process has been known to increase recovery factors from approximately 10 percent under primary recovery methods to up to approximately 20 percent. Our waterflood operations have attractive margins and returns. These operations typically have low and predictable production declines and allow us to extend the productive life of major fields and significantly increase our incremental recovery after primary recovery. As a result, investments in waterfloods can yield attractive returns even in a low oil price environment.
Some of our fields contain heavy, thick oil. Steamfloods work by injecting steam into an oil and gas reservoir to heat the oil, which allows it to flow more easily to the producing wellbores. Steamflooding is a well understood process that has been used in California since the early 1960s. This process has been known to increase recovery factors from approximately 10 percent under primary recovery methods to up to approximately 75 percent. The steamflood process generally requires low capital investment with attractive margins and returns even in a low oil price environment. The economics of steamflooding are largely a function of the ratio between oil and natural gas prices. Since natural gas is typically used to generate steam, steamflooding offers favorable returns as long as the oil-to-gas price ratio is in excess of five. In 2019, the oil-to-gas price ratio averaged over 20. After drilling, these operations typically ramp up production over one to two years as the steam continues to influence the oil production, and then exhibit a plateau for several months, with a subsequent low, predictable production decline rate of 5 to 10 percent per year. This gradual decline allows us to extend the productive life of a viscous oil reservoir and significantly increase our incremental recovery after primary production.