It was not until the fantastic rise in energy prices of the last several years (remember: a decade ago a barrel of crude was less than $15) that companies that do oil exploration and production (E&P) began a serious consideration of extracting the very low grade bitumen (essentially the most expensive part of a barrel of oil to refine, and directly the stuff that holds the stones together in asphalt). When prices looked as if they were heading straight for $100, and even more so when it looked like they were heading straight for $200, companies began investing heavily in the Canadian province of Alberta, which is estimated to hold 1.7 trillion barrels of oil, according to government sources. However, the recent turn around in the direction of oil prices, combined with the banking crisis which is (1) making it difficult to put together financing for exploration projects and (2) creating concerns that the slowing economy will push oil below $70, the price that determines profitability for these projects, has cast the future in doubt. All of that said, the physical process by which oil is extracted from the ground is quite interesting and something that is as mysterious as the magic smoke inside an ipod to most people. So for your edification, take a look at the diagram below:
The above image, taken from an investor presentation given by Petrobank, an E&P company working in Alberta, shows the basic anatomy of a well site.
- The vertical well sections are drilled about 1.5km on average, although they could get as deep as 3-4km
- Once the drill reaches the oil sand deposits, the direction will be changed so that the well will continue horizontally. This is done because the seam containing the oil sand is relatively shallow and the more surface the well can make contact with, the more production that will follow.
- Once the actual hole of the well is drilled, it is shored up with a high pressure casing that maintains the structural stability of the well.
- Following this, the casing is fractured in many places using explosives. This has the double effect of loosening up the surrounding sand formations, allowing the oil to flow more easily, as well as providing more entry points for oil to flow into the casing.
- On the surface, the pump jack helps create the pressure required to extract the heavy bitumen from the ground