OVERVIEW OF OIL AND GAS EXPLORATION

 As most of you probably know, Colonel Drake discovered oil in 1859 at Titusville, Pennsylvania with a well he drilled utilizing a steam-powered cable tool drilling rig. Colonel Drake’s commercial discovery led to substantial drilling activity in Pennsylvania and other states in the eastern United States. Basically, cable tool drilling consists of utilizing a derrick to hoist a heavy sharply pointed metal pole high into the air which is then dropped into the well, breaking up the rock and sediment and gradually deepening the hole until the desired depth is reached. Cable tool drilling techniques were sufficient to drill for the shallow oil found at Titusville and elsewhere in the region, but the technique was only useful down to a depth of 400 to 500 feet. 

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It was in January 1901, just outside of Beaumont, Texas, at a place called Spindletop, that modern oil and gas exploration got started. Like everyone else who lived there, a local man named Pattillo Higgins had seen the oil and gas seeps on the low mound rising out of the flat coastal plain. But unlike the others, Higgins used his reasoning abilities to surmise that the seeps pointed to the existence of a large accumulation of oil, which he correctly reasoned was present because of the mound. In fact, Higgins had arranged financing and had leased or acquired all the land over the mound more than ten years previous to the discovery. As a result of his work and money-raising efforts, three wells were drilled which were unsuccessful only because the rotary drilling equipment they used was not substantial enough to achieve the 1,000 feet of depth Higgins said was necessary to find the oil. 

Note: (A rotary drilling rig utilizes a bit on the bottom of the drill pipe. The entire drill string is rotated, which turns the drill bit and makes hole. This is the primary drilling method utilized in oil and gas exploration today.)

​Higgins’ dream of proving the existence of the large pool was finally realized when Captain Anthony Lucas answered his advertisement and joined the effort with bigger rotary drilling equipment capable of achieving the necessary depth. After many months, the well came in as a gusher, blowing oil and gas hundreds of feet into the air. Pattillo Higgins was vindicated, and very deservedly so. Over the years he had undergone a lot of scorn and ridicule by the people of Beaumont who had not spent the time familiarizing themselves with the known principles of geology and reasoning out the facts as he had. Although when it happened, he was no longer the principal driving force behind the discovery, like hundreds of others, Pattillo Higgins became a rich man when Captain Lucas’ well blew in. 

 As the news spread, Beaumont quickly became a boom town. The modern oil and gas exploration business was born out of the ensuing scramble to capitalize on the discovery. In 1901, unlike today, there was no government agency in charge of enforcing rules and regulations designed to prevent waste and promote conservation of this valuable resource. For the next few years, wells were drilled anywhere on the mound space and mineral rights could be acquired for them, resulting in extreme over-drillng and much waste. But out of all the activity and chaos, much was learned by the hundreds of men who took part. Information was shared, and drilling and production technology advanced rapidly. And, perhaps, most importantly, an army of men who received their training at Spindletop, took their new knowledge, skills, and expertise and fanned out over the Texas and Louisiana Gulf Coast to find and produce other major oil fields.   ​

Then, in 1930, another interesting story came out of the efforts of a different type of oilman. His name was Dad Joiner, and unlike Pattillo Higgins who was trying to make his fortune by actually finding a large accumulation of oil, Joiner was not so much as interested in finding a large pool of oil as he was in fleecing his investors.   

Born in 1860, Joiner was already an old man in 1930, and his frail condition was further weakened by many years of heavy drinking. Maybe he really believed he could find oil on his East Texas leases. But even if he did think so, it is doubtful that he actually believed the ridiculous story his “geologist”, Doc Lloyd, told potential investors. According to Lloyd, the Daisy Bradford lease where they were drilling sat on top of the “apex of the apex”, a place where a giant subterranean river of oil coming out of Pennsylvania met another coming out of Colorado. Nor did Joiner believe the rest of the geologic information presented to potential investors. Doc Lloyd’s structure maps which, although full off technically factual information, contained not one true thing about the geology of the region. ​   

Anyway, the fact remains that when the drilling on the Daisy Bradford No. 3 began showing signs of oil, Dad Joiner, became extremely nervous. He had expected another dry hole just as he knew the odds dictated, and he was planning to make his profits by unscrupulously overselling the venture, which he had done. Joiner knew if they plugged the well without dispersing any revenues, his unsuspecting investors would never know of his dishonesty According to information assembled in the melee after the huge discovery, Dad Joiner had sold the prospect more than three times over.  As an interesting aside to this story, the Daisy Bradford No. 3 would have indeed been a dry hole if it had only been drilled where Dad Joiner intended to drill it. The limits of the field are well known today, and the location they were trying to reach was just barely outside them. Unfortunately for Joiner, the harness for the mule team they were using to skid the rig from the No. 2 location broke while the equipment was in transit, and the decision was made to go ahead and drill where the breakdown occurred. ​ When it came in, the Daisy Bradford No. 3 well was the discovery well for the largest oil field in the world, the giant East Texas Field, a geologic freak that covers an aerial extent of more than 200 square miles and has produced to date more than 5 billion barrels of oil. This is a discovery that is significant for many reasons including maybe most importantly, the very crucial role it played in supplying the allied armed forces with fuel during the Second World War.

Because the study of geology has progressed so far since then, Doc Lloyd would have a much harder time today trying to convince potential investors that the lease he wanted to drill on represented the “apex of the apex” of two giant “rivers of oil”. 

​Oil and gas explorationists of today understand very well how accumulations of oil and gas occur. They have identified four requirements which must all be present in order for oil and gas to accumulate in commercial quantities.

The first is the presence of a source rock. In East Texas where the prospects we are examining are located, because tremendous accumulations of the stuff has already been found, we know for certain this is no problem. 

Next, you must have a porous and permeable reservoir rock. It must be porous because it must have space within the rock for the oil and gas to accumulate. And those spaces must be sufficiently connected (permeable) so that the hydrocarbons may move through the reservoir rock. 

​The third thing you need is the presence of a trap. We understand now that subterranean pressures will cause oil and gas to migrate upwards from the depths at which it was created to the highest level possible, even reaching the surface at places like Spindletop where conditions allow. Thus, it will migrate through reservoir rock after reservoir rock (porous and permeable sandstone and limestone) until conditions are encountered which prohibit further upward migration. At Spindletop and other similar Gulf Coast fields, this trap was the four-way dipping anticlinal structure which was created by the movements of a subterranean salt mass. The anticlinal structure is the perhaps the simplest and maybe the most prolific of the different types of structural features that define oil and gas traps. In the early days following the discovery of Spindletop, it was the type of trap that could be found rather easily by taking notice of surface conditions. The other main type of structural trap is the fault trap. A fault trap occurs when a formation, after being laid down in a marine environment, is then buried perhaps thousands of feet below the surface by layers of additional formations. After being deposited in a continuous, unbroken layer, the reservoir rock is then displaced by a fault, causing the formation on one side of the fault to be higher than the same formation on the other side. Migrating hydrocarbons are then trapped against the fault when the original porous and permeable rock is displaced against a non-porous and non-permeable rock like a shale formation. The other major classification of oil and gas traps is the stratigraphic trap. This type of trap occurs when a porous and permeable reservoir rock becomes discontinuous due to depositional or erosional conditions. Thus, the migrating hydrocarbons encounter a barrier at the updip end of the stratigraphic trap and are blocked form further migrations. Also, traps have been demonstrated to exist which comprise all possible combinations of the different types of traps outlined just above. Traps such as these are referred to as “combination traps.”

​The last thing that is needed in order to find accumulations of oil and gas is proper timing. Finding a proper trap is not sufficient if it is formed after the hydrocarbons have already migrated through. 

Today, as a result of the evolution of technology that began more than 100 years ago at Spindletop, many tools are available to help explorationists in their quest to identify accumulations of oil and gas. Perhaps the most basic, common and useful tool is well logging. 

Probably the most time consuming and also the most important part of the work performed by petroleum geologists is the regional multi-level subsurface

mapping they do utilize all available well logs as the basis. Although  as many as 100 different types of well logging tests are available, in  practice, a much smaller number are utilized in any given geologic  region. Historically, well logging got its start with electric logging techniques, a process that uses the fact that water is more conductive of electricity and oil more resistive. Some well logging techniques are used to identify the rock formations penetrated by the well and to evaluate some of their characteristics such as their porosity or permeability. Other logging techniques are used to identify the fluids and gases within those formations. 

In addition to well logs, petroleum geologists of today will gather all other information available in connection with each well previously drilled within the area being studied. This information could be in the form of conventional or sidewall cores and their analyzed results, drill stem tests, production tests, scout tickets, or production records from successful wells. These types of information are available through appropriate governmental agencies, and through several companies who profit by charging fees for providing the same, and also by associations of geologists called “log libraries” which are typically non-profit and exist for the benefit of their geologist members. 

Besides the study of well logs and other tests performed in regard to wells, the other main tool of oil and gas explorationists is seismic or geophysical information. Geophysicists have found that much like a rubber ball dropped on pavement will react much differently to a rubber ball dropped on sandy soil, sound waves bounce off of different kinds of rock in predictable ways that can be measured and used to make subsurface maps. The first seismograph was developed in the 1850’s for use in detecting and recording earthquakes. Its use as an oil and gas exploration tool probably began as early as the 1920’s but didn’t become widespread until the 1950’s. It is so heavily relied upon now that most professional oil and gas explorationists would never consider drilling a well in an area before first looking at all available seismic information. 

The two newest techniques being utilized today which most people are familiar with are 3-D seismic and horizontal drilling. 3-D seismic is an imaging technique made possible by advances in computers and processing. Instead of the conventional, 2-D method where lines of seismic are shot across an area providing a cross-sectional view of the subsurface, 3-D seismic acquires the data in a grid pattern, enabling a  much more detailed, three-dimensional subsurface picture to be obtained.  It is without question a great technological advancement and a fantastic exploratory tool. Since its use became more widespread roughly fifteen years ago, 3-D seismic has successfully unlocked many subsurface secrets previously inaccessible by other exploration techniques, Of course, though it would undoubtedly be desirable to utilize this technique in almost every area where exploration is occurring, in reality, the substantial cost of acquiring 3-D data must be weighed against its potential value as an exploration tool.

Horizontal drilling, the other relatively new technology, was developed on the offshore drilling platforms where many wells had to be drilled in different directions from a single drilling location. Onshore, horizontal drilling has proven to be a very useful tool in accessing secondary or fractured porosity in otherwise tight formations which are almost impossible to encounter with a conventional, vertical hole.

​Finally, advances in computers and programming and the existence of the world wide web are also having a big impact on oil and gas exploration and the manner in which it is conducted. 

First, foremost, and always, oil and gas exploration is a numbers game….. and a good one at that. As an illustration of this very important fact, please consider the following: 

Imagine being invited to be a contestant in a television game show. And on this game show, your task as a participant was to choose one of four possible doors. As a contestant, you are told that behind three of the doors were invoices to you in the amount of $1,000 and you understand and agree in advance that you will pay the invoice if any of the doors containing one are chosen. But behind the fourth door, if you are lucky enough to choose it, is $50,000 in cash. 

So… think about it for a moment… There are three chances out of four that you will have to pay $1,000. And there is only one chance in four that you would benefit. Does the fact that if you are successful, your gain will be many times the amount you would lose if unsuccessful motivate you to play the game? Assuming only that you could afford the $1,000 that you may very well lose, you bet it does. Or at least it should. 

But what we are talking about here with this “one time” shot at $50,000 is nothing more than a game of chance. And, frankly, if your goal is to be successful, then the odds are not in your favor. 

What then, would you think if you were invited onto the game show to play the same game every day for six days in a row? How about ten days in a row? Or twenty? Do you think the odds would favor your success in this scenario? You bet they would. 

And that is how we view oil and gas exploration. Knowing that the odds do not usually favor success for an individual prospect, never put all of your available funds into one deal. But instead, put your money into six or even more prospects, thereby taking those long odds and turning them around so that they favor your success instead. 

​And guess what? It turns out that participating in oil and gas exploration can be even more fun than being a contestant on a television game show.

Of course, all of this is always done with the proviso that the detailed, hard work required in order to verify the facts and other representations made behind each investment opportunity must always be performed. Otherwise, instead of playing a game with the certainty that you understand the odds, your sloppiness and perhaps your laziness puts you into a game where the rules are unknown to you. 

As president of Stardust Energy, Inc., I am not technically trained in geology or geophysics. But I am a petroleum landman with over thirty years of experience. And, perhaps most importantly for the purposes of detailing my qualifications to manage oil and gas investments, I have more than fifteen years of experience as a successful investor in oil and gas exploration. 

​As such, I have a broad understanding of the principles of geology and geophysics. Having been involved in easily over a hundred prospects from their inception to their being drilled, and, in many cases, to their development and production, my experience provides much important and useful information, which I can draw upon to make good decisions and to avoid potential pitfalls. Also, I have noticed that I’m good with numbers, which is important when dealing with the various economic considerations.