26th Oil Shale Symposium Colorado School of Mines

16-19 October, 2006

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The EGL Oil Shale Process

Paul Lerwick, Glenn Vawter, Roger Day, EGL Resources, Inc.

H. Gordon Harris, University of Wyoming

Abstract

It is a well documented fact that the Green River oil shale deposits in northwest Colorado, southwest Wyoming and eastern Utah contain on the order of 1.5 trillion barrels of) shale oil in place. It has also been demonstrated that we have the technology to recover this oil. Government and industry are currently embarking on a carefully and thoughtfully designed program to determine an efficient and environmentally acceptable method of recovering this oil in a timely and economic manner.

EGL believes that the prudent development of the Green River oil shale resources will play a critical role in reaching the objective of:

1) Providing energy necessary not only for our economy, but for national security as well 2) Creating tens of thousands of jobs in America 3) Improving our trade and budget deficits 4) Providing long life, domestic oil production to help us bridge the transition from an

economy heavily dependent on non-renewable hydrocarbons to an economy based primarily on renewable energy sources

EGL also believes that “approach is equally as important as the objective”. This paper lays out how EGL, through its “closed system”, in situ heating process, utilizing horizontal heat transfer piping combined with multiple vertical production/heat conduction holes plans to arrive at a method of oil recovery, optimizing a combination of design and technology that:

1) Works with natural physical properties and processes 2) Minimizes the impact on the environment 3) Minimizes the use of water, and the impact on ground water 4) Minimizes the release of greenhouse gases and other undesirable byproducts 5) Maximizes the use of current technology in innovative ways 6) Maximizes product recovery and thermal efficiency 7) Minimizes the use of energy from external sources 8) Maximizes control over the process (including intended and unintended results) 9) Minimizes negative impacts and maximizes benefits to local communities 10) Maximizes the benefit to the national energy policy goal of increasing domestic oil pro-

duction 11) Provides an attractive Rate of Return to investors

Introduction

Oil shale is, by far, the largest undeveloped energy resource in the United States. Ex-ploitation of this resource presents a great opportunity and many challenges. In this presentation, the perspective of EGL Oil Shale in development of this resource is given. Before outlining the EGL Oil Shale Process, the context for our development

efforts and the need for oil shale exploita-tion at this time are outlined briefly. Worldwide Oil Production and Price

All authoritative sources point to the grow-ing imbalance of consumption versus dis-covery and reserves of oil. Figure 1 illus-trates the dramatic imbalance between

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historic and present oil production, com-pared with past plus projected reserves dis-covery [1].

As a consequence, projections of world hy-drocarbon production invariably demon-strate a peak in the near future, followed by irreversible decline. Figure 2 is a typical projection for production of crude oil and natural gas liquids from various geographi-cal regions, in which annual production is shown from 1930 to the present, and future production is projected to 2050 [1].

This projection shows a peak occurring between 2010 and 2020. Unfortunately, world energy supply for liquid transportation fuels is so dominated by hydrocarbons that nothing is on the horizon with the potential to supplant this energy source. Since demand must balance with supply, the issue becomes the price of the liquid fuels.

Crude oil prices since 1861 (in 2003 dollars) are shown in Figure 3, in which important world

events are superimposed [2]. The lower (brown) curve is in “dollars of the day”, while the upper (green) curve is in 2003 dollars. Once the oil industry became firmly established in the 1880s it was in a state of chronic surplus – whenever prices went up, exploration and drilling would follow, and new supplies would come on line and drive down the price. The effects of the oil embargo of 1973 demonstrate the response of shortage on

price, so that from 1973 to 1980 oil price was artificially high, although the artificial high could not hold.

However, once world peak oil production is passed, a period of chronic oil shortages will exist, and price will rise to the point where demand must be reduced. This will be a period of chronic oil shortages and very high prices. During the last boom and bust in oil shale, the same projections of high oil prices and need for domestic sup-plies of energy were stated. It did not hap-pen, so why is there a difference this time?

THE GROWING GAPTHE GROWING GAP

Figure 1: Historical and Forecast World Oil Production

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Figure 2: Historical and Forecast World Oil Production

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In the 1970s, the high prices and oil supply shortages were caused by political prob-lems, not a shortage of supply to meet world demand. Now experts are projecting that condition will change in the next years as oil supply peaks and demand around the world expands in a dramatic fashion. Therefore, a real supply demand crisis is lurking, and oil shale is one of the supplies that could help U.S. energy security and moderate the price of oil in the long term.

The Wild Card: Global Warming

The foregoing discussion does not, however, take into account a major un-known – global warming. Figure 4 shows conditions that have sparked an in-tense new global debate that was not underway the last time oil shale development was being attempted [3]. Shale oil, like oil sands, requires a great deal of energy input

to produce, with attendant enormous green-house gas emis-sions.

Figure 5 is a global carbon balance [4]. While fossil fuel emissions repre-sent a very small fraction of the global carbon dioxide released to the atmosphere each year, if it becomes evident that these emissions are creating a “tipping-point” to the

environment, and this concomitantly results in some type of global warming “feedback-loop”, the fossil fuel emissions will become a very big issue indeed.

The U.S. Domestic Oil Picture

The position of the United States with re-spect to oil supply and demand is unique.

?

Figure 3: Crude Oil Prices since 1861 (2003$)

Figure 4: Global Warming

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First, the U.S. is increasingly reliant upon and vulnerable to oil imports. Figure 6 dramatically makes this point, although the graphic is somewhat dated – the U.S. is currently consuming about 21 MMBO/day, and importing over 60% of it [1].

Figure 7 points out that the greatest volume of oil that the U.S. can “free-up” in the short term – over the span of about 10 years or so – is through improved transportation fuel efficiency [5]. If domestic car sales averaged fuel efficiency equal to that in China, the net result would reduce our future demand by about three MMBO/day.

Unconventional Oil Resources

One option for addressing the U.S. oil consumption/

production imbalance is through production of oil from unconventional resources. Figure 8, which was taken from “The Strategic Signifi-cance of America’s Oil Shale Resource, Vol-ume 1”, compares world conventional oil resources with the un-conventional oil re-sources of North America [1]. As can be seen from Figure 8, North America is blessed with extraor-dinary potential for production of liquid fuels from uncon-ventional oil resources.

It should be noted that the resources show in

Figure 8 are a bit of “apples and oranges”, since conventional oil resources and Canadian oil sands represent booked re-serves, while United States oil shale re-sources represent “oil-in-place”, which

Figure 5: The Present Carbon Cycle

U.S. INCREASING RELIANCE ON U.S. INCREASING RELIANCE ON

IMPORTSIMPORTS

Source: EIA (AEO 2004); Reference Case

70%

53%

30

TotalImports

U.S. Production

U.S. Consumption 19.8M BPD

28.3M BPD

9.3M BPD 8.6M BPD

19.7M BPD

2025

2002

Includes 4M BPD FinishedProducts10.5M BPD

Mill

ion

bbl p

er d

ay

U.S. INCREASING RELIANCE ON U.S. INCREASING RELIANCE ON IMPORTSIMPORTS

Source: EIA (AEO 2004); Reference Case

70%

53%

30

TotalImports

U.S. Production

U.S. Consumption 19.8M BPD

28.3M BPD28.3M BPD

9.3M BPD 8.6M BPD

19.7M BPD19.7M BPD

2025

2002

Includes 4M BPD FinishedProducts10.5M BPD10.5M BPD

Mill

ion

bbl p

er d

ay

2006Figure 6: U.S. Oil Imports

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could be recovered through application of appropriate technology. Nonetheless, oil shale resources can be seen as truly world class, and represent the potential for long-term energy security, jobs tax revenues,

and other economic benefits.

In Figure 9, the global crude oil reserves by country are compared. The values in this figure represent actual booked, economi-

M

PGM

PG

Figure 7: Worldwide Mileage Statistics

Figure 8: North American Unconventional Oil Resources

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cally attractive proven productive Canadian oil sand reserves [6]. Note that out of a total Canadian reserve base of 179 billion bbls, 175 billion bbls are oil sands – this reserve base will yield a five MMBOPD rate for 96 years!

Noted oil industry analyst, Henry Groppe, expects this Canadian reserve number to grow to around 300 billion barrels in the near future as new recovery technologies such as steam assisted gravity drainage (SAGD) prove up an increasing amount of the oil sands that are economically recover-able.

Figure 9: Global Crude Oil Reserves

Figure 10: Growth of Canadian Oil Sands Production

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The history and trajectory of Canadian oil sands development is shown in Figure 10 [7]. Oil was first produced out of Alberta Athabasca oil sands on a commercial scale more than thirty-five years ago. Note that production did not reach 500,000 BOPD un-til roughly 1995, but is now expanding rap-idly with projects in construction or planned expected to raise production to 2.7 MMBOPD by 2015, which will be roughly 70% of Canadian oil production.

The development of Canadian oil sands provides an excellent analogy for the devel-opment of U.S. oil shale resources; this is illustrated by several figures later in this presentation.

Commercialization of oil shale will undoubt-edly parallel the steps of that of Canadian oil sands development.

Figure 11 is from a presentation by Mr. Tony Dammer of the Office of Naval Petro-leum and Oil Shale Reserves; this was given at the March 22-23, 2006 Task Force

Meeting [8]. EGL agrees that significant commercialization of U.S. oil shale re-sources is at least 20-25 years in the fu-ture.

The EGL Oil Shale Process

The EGL Oil Shale Process will be tested, developed and demonstrated at a site in the Piceance Basin (Figure 12). For context, a general aerial view of the Piceance Basin is shown in Figure 13; drilling and production sites for the current, ongoing gas development are apparent in this photo. Figure 14 shows a typical outcrop of oil shale in the Piceance Basin, in which the beds of dark, organic rich mate-rial are clearly visible. Figure 15 is a snap-shot of the EGL test site.

A process schematic of the EGL Oil Shale Process is shown in Figure 16. EGL’s tech-nology involves a systems approach in ap-plying modern oil and gas methodology to in-situ oil shale processing. This unique technology is based partially on the ex-

Oil Shale Commercialization ProcessOil Shale Commercialization Process

BasicResearch

AppliedResearch

Bench Scale Plants

I. Laboratory Phase II. Field Testing Phase III. Commercial Phase

PilotPlants

Semi Works(Scale Up)

DemoPlants

CommercialPlants

HytortKentortOil TechSyntec

STBExxon FBAC RollerGrate

DravoSuperiorParahoLurgiATPToscaMIS/IS

UnocalPetrosixGalatorKivitorChina

Time: 20/10yrs

10/5yrs

0yrs

25/20yrs

Cost: $105 $106 $107 $108

New Technology:Gov’t Cost-SharingNETL RoleNat. Labs

Cost-SharingGov’t/IndustryPR/NPOSR Role

Stabilize`Market withIncentives

CommercialFeasibility

Study$5 Million

Grants

* Lukens Diagram

Oil Shale Commercialization ProcessOil Shale Commercialization Process

BasicResearch

AppliedResearch

Bench Scale Plants

I. Laboratory Phase II. Field Testing Phase III. Commercial Phase

PilotPlants

Semi Works(Scale Up)

DemoPlants

CommercialPlants

HytortKentortOil TechSyntec

STBExxon FBAC RollerGrate

DravoSuperiorParahoLurgiATPToscaMIS/IS

UnocalPetrosixGalatorKivitorChina

Time: 20/10yrs

10/5yrs

0yrs

25/20yrs

Cost: $105 $106 $107 $108

New Technology:Gov’t Cost-SharingNETL RoleNat. Labs

New Technology:Gov’t Cost-SharingNETL RoleNat. Labs

Cost-SharingGov’t/IndustryPR/NPOSR Role

Stabilize`Market withIncentives

`Market withIncentives

CommercialFeasibility

Study$5 Million

Grants

* Lukens Diagram

Figure 11: Oil Shale Commercialization

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16-19 October, 2006

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traordinary progress made over the last twenty-five years in exploiting petroleum reserves, including advances in geology and geophysics, drilling and measurement while drilling (MWD), hydraulic fracturing and other means of stimulation of very low permeability and low porosity reservoirs, and new completion technology and pro-duction techniques. Advances in technol-ogy such as these have resulted in exploi-

tation of entirely new types and classes of oil and gas reservoirs, and their application will enable efficient and economic develop-ment of oil shale deposits. Such oil and gas exploration and exploitation technology was not available during the late 1970s and early 1980s, the last period of intense in-terest in oil shale.

The EGL Oil Shale Process provides a unique systems approach focused in six ar-

Figure 14: Oil Shale Outcrop

EGL’S RD&D Test SiteEGL’S RD&D Test Site

Figure 12: Location of EGL Test Site

Figure 13: Aerial View of Piceance Basin

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eas: (1) resource characterization, (2) en-ergy delivery systems, (3) product recovery systems, (4) reservoir hydraulic fracturing stimulation, (5) energy recovery, and (6) operations, environmental protection, and reclamation. Selected aspects of these technology areas are discussed below.

The process calls for a closed loop heating system carrying heating fluids, for example superheated steam or inert heating oil, along the base of oil shale intervals to be retorted. The shales to be retorted will be penetrated vertically by a system of “spider holes” that intersect the heated layer. These “spider holes” will be directionally drilled by coiled tubing, and are designed to conduct heat and vaporized shale oil and gases upward in the retorting zone. Pumping units will produce higher gravity liquids from “drainage sumps” located in the middle of each pattern.

Resource Characterization

One of the most important areas of re-source characterization is hydrology, and identification and description of ground water sources. The EGL Oil Shale Process is designed to minimize problems with sub-surface water. The wells for energy deliv-ery will be cased off and insulated against

Figure 16: EGL Oil Shale Process Schematic

Figure 15: EGL Research, Development and Demonstration Test Site

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thermal transfer to all overburden and any aquifers within the overburden strata. The initial field demonstration site was selected to minimize potential problems with hydrol-ogy. As the field demonstration project is expanded, any aquifers and/or water con-ductive fractures and/or leach zones in the shale itself will be identified, and water movement into the thermal zone will be prevented by boundary wells to pump off any mobile water.

Figure 17 shows the Mahogany (R-7) and R-6 intervals that EGL plans to retort in its initial research and development phase.

Energy Delivery System

A key feature of EGL’s technology is the en-ergy delivery system. Energy delivery will be via indirect heat transfer from a closed system. The energy system involves multi-ple, deviated wells drilled from the surface to the oil shale zone, and then returning to the surface. The wells will be cased and partially cemented, and will form part of a closed system through which a heat trans-fer medium will be circulated. The cased wells entering the conduit well will be joined together by a common injection manifold system, and the returned wells will also be connected to a collection mani-

EGL RD&D RETORT INTERVALEGL RD&D RETORT INTERVAL

Figure 17: Geologic Cross Section Showing Target Retorting Interval

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fold. In this fashion, the wells will form part of a closed system, through which a heating fluid can be circulated. Conse-quently, nothing will be introduced into the Green River oil shales other than heat. This allows significantly better control over the process than can be achieved with proc-esses that either combust a portion of the oil shale or introduce other gases or liquids into the formation. This system will mini-mize potential contamination and environ-mental problems for both the site’s surface as well as subsurface hydrology, and will minimize loss of expensive fluid heat-transfer media. The EGL energy delivery system is designed to leave a very small surface footprint, with minimal surface disruption. The injection side of the wells will be drilled by deviated drilling technol-ogy through a single conduit pipe from a single drill pad, minimizing surface impact. Likewise, the collection side of the wells will be designed to penetrate the surface up-wardly and vertically over a very small area, with the same result. Finally, the closed energy delivery system provides for maximum flexibility in use of different modes of heating, for example, by circula-tion of one or more heating fluids, use of downhole gas burners or catalytic heaters, or with electrical resistance heaters.

Product Recovery System

Another key to the EGL Oil Shale Process is the hydrocarbon product recovery system. As with the energy delivery system, pro-duction wells will be drilled via coiled tubing drilling system through a large diameter, insulated conduit pipe. The EGL system incorporates the use of “natural processes”, such as gravity, the tendency for heat to rise, convection and reflux in its design in an attempt to maximize efficiency. As with the heat delivery system, this will minimize the surface footprint and reduce environ-mental impact of the recovery system.

Reservoir Stimulation

The final element in product heating and recovery involves hydraulic fracturing of the

oil shale deposit. This will provide an ex-tensive fracture system to allow flow of fluids from the point of generation near the energy delivery system toward the product recovery zones. Well completions and stimulation, including hydraulic fracturing, is another area in which oil and gas tech-nology has advanced dramatically over the past two decades. Reservoirs that were much too tight to develop during the 1970s and 1980s (including reservoirs with micro-darcy permeability) currently are routinely fracture treated to yield very productive and profitable oil and gas wells. Equip-ment, personnel, procedures and modeling techniques are available to implement, control and predict a wide range of fracture procedures. Fracture size, fracture orienta-tion, the effects of foams, the use of prop-pants, and a host of other features can be provided by firms that provide well comple-tion, stimulation, and fracture treatments.

Energy Recovery

The EGL process envisions a gradual heat-ing of the shale over a number of years. This creates a higher quality product (38 API versus 21 API liquid product), less sul-fur, less nitrogen and less coke than is achieved with surface retorts. Surface re-torts typically operate at 800-900oF in order to convert the kerogen in the shale to oil in a very short time period (on the order of minutes). Studies have shown that de-creasing the heating rate from 5oF per hour to 5oF per month decreases the required maximum temperature to complete oil gen-eration from nearly 700oF to just over 500oF, a very significant decrease in the amount of heat energy required.

Further, because of the extraordinary en-ergy demands of oil shale processing, effi-cient energy management is one of the most important aspects of production of oil from oil shale deposits, and is a major area in which projects may founder. The EGL Oil Shale Process provides unique methods of energy management, conservation, and efficiency. First, the EGL process employs

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indirect heat transfer, in which the heating fluid is segregated from the oil shale de-posits by an energy delivery system com-prised of a number of wells. This greatly simplifies energy management.

While some energy is consumed in the thermal decomposition of kerogen, these reactions are only slightly endothermic. The vast majority of the energy require-ments come simply from heating the huge quantities of rock -- oil shale, overburden, and underburden. It is essential to recover energy from this source. It should be noted that vaporizing excessive amounts of water that may exist in the natural environment will reduce energy efficiency. Thus select-ing the optimum thickness/depth of oil shale to retort in connection with identifying natural aquifers, via the characterization program, is an important feature of the program to optimize energy efficiency and reduce environmental impacts.

During the early stages of retorting of a vertical column of oil shale, the energy in-put will be completely utilized in heating the deposit. However, as the project proceeds, the heating fluid leaving the energy delivery wells may reach high enough temperatures that direct reuse will pose operational problems. During this mid-stage of opera-tions, the exit heating fluid can be directed to an adjacent pattern in which operations are just beginning, so that heat is efficiently used for initial reservoir heating of this ad-jacent pattern, while the heat transfer me-dium is cooled to easily manageable tem-peratures.

Equally importantly, as oil recovery from a pattern nears completion, it will be possible to recover a substantial fraction of the en-ergy in the formation, by preheating the heat transfer medium in this spent pattern. In this fashion, overall energy recovery will be dramatically enhanced. It is apparent that with careful engineering, overall en-ergy efficiency of the EGL Oil Shale Process will be high, compared to other oil shale processes.

Operations, Environmental Protection, and Reclamation

EGL’s RD&D plan calls for eight dewater-ing/monitoring wells to surround its retort area to de-water the area and keep any water from entering the area during retort-ing. EGL will drill and test these eight wells, and likely other wells on the perime-ter of the 160-acre tract, prior to any re-torting as part of its plan to evaluate thor-oughly all aquifers above and in the retort area. EGL will resort to other techniques to isolate the retort area from water influx if the planned dewatering is shown to be in-effective during the characterization of the site. These techniques may include the use of sealants like polymers or grout or an ice wall.

EGL’s RD&D plan calls for a great deal of research into the best way to “pump-and-treat” the retorted oil shale interval to an environmentally acceptable condition once oil and gas recovery is complete.

It is interesting to note that whether re-torted on the surface or heated in-situ, oil shale requires an enormous amount of heat input to raise the rock to a temperature at which conversion of kerogen to oil and natural gas occurs; for example a 1,000 foot column of oil shale, one acre in area requires 150,000 – 200,000 barrels of oil equivalent for retorting. If this energy is derived from hydrocarbons, it is not only the greatest single expense, but is also a very large source of CO2 emissions.

While the closed loop system will present some drilling challenges, the “technical” as-pect of the EGL RD&D process is probably one of the lesser challenges. As in all new endeavors, there will be a steep “learning curve” in which early successes will come at high costs. However, as the wrinkles are worked out, and best solutions identified the process will move from sub-economic to commercial over a period of 10-20 years. Tax incentives, joint government/industry research, cooperation between all involved

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and interested parties, and patient inves-tors will all be required.

A Case Study: Canadian Oil Sands Development

As noted earlier, the technology that most closely parallels oil shale development is the ongoing exploitation of Canadian oil sands. The next four figures show histori-cal and projected data for oil sands devel-opment.

Figure 18 shows production costs in 2002 US$/bbl for Alberta oil sands over the last 25 years [7]. Note that they have de-creased by over 75% as companies in-volved moved up the learning curve. Also, note how the decrease in production costs was accompanied by a corresponding five-fold increase in production. This curve was generated in 2003; actual production topped 1MMBOPD this year. Figure 19 gives job creation associated with both con-struction and production, which peaks at about 240,000 in 2008 [7].

Figure 20 illustrates the economic benefits from oil sands [6]. The Canadian Energy Research Institute (CERI) anticipates that the industry will also invest $100 billion over this same time frame. It is of note that the U.S. currently imports nearly $300

billion per year of foreign oil, representing 37.5% of our trade deficit. The dramatic impact of oil sands on government reve-nues in Canada is shown in Figure 21 [6].

Conclusions

Based on the foregoing discussion, EGL concludes the following: • Commercial production lead times for

shale oil are long • World oil prices will be high by the time

commercial production commences • Early efforts will be expensive and re-

quire joint research and tax incentives • Production costs will decrease over

time • The EGL Oil Shale Process offers ad-

vantages over some competing tech-nologies

• Oil shale production will exceed con-ventional domestic production in the long term

• U.S. economic and security benefits are huge

• EGL will conduct a transparent RD&D program, and will keep the public in-formed of its activities as the program progresses

•

Figure 18: Improvement in Oil Sands Economics

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Figure 19: Canadian Job Creation through Oil Sand Development

Figure 20: Economic Benefits from Oil Sands

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References

1. “Strategic Significance of America’s Oil Shale Resource, Volume I, Assessment of Strategic Issues”, Office of Naval Petroleum and Oil Shale Reserves, U.S. Department of Energy, March 2004.

2. British Petroleum, see: http://www.bp.com/sectiongenericarticle.do?categoryId=9009495&contentId=7017954

3. Hadley Centre for Climate Prediction and Research, see: http://www.met-of-fice.gov.uk/research/hadleycentre/obsdata/globaltemperature.html

4. United Nations Environment Programme, see: http://www.grida.no/climate/vital/13.htm

5. “An Inconvenient Truth”, Al Gore, Rodale Publishing, 2006.

6. Canadian Association of Petroleum Pro-ducers, Oil Sands Economic Impacts across Canada – CERI Report, September 2005.

7. Canadian Association of Petroleum Pro-ducers, Submission to the Alberta Multi-Stakeholder Committee on Oil Sands Con-sultation, October 2006.

8. Office of Naval Petroleum and Oil Shale Reserves, Tony Dammer; 2006 Task Force Meeting, March 22-23.

Figure 21: Governments’ Revenues from Oil Sands