Derek Resources has achieved success with one of the few US projects known to be producing oil using steam-assisted gravity drainage (SAGD) technology.

Derek Resources Corp. has achieved pilot plant oil production from its 7,388-acre LAK Ranch project using SAGD recovery technology. SAGD operations began in March, with first oil production later that same month.
Derek sold the bulk of its initial production to a nearby refinery for US $0.50/bbl.
The project is in the Powder River Basin, about 4 miles (6 km) southeast of Newcastle in eastern Wyoming. The oil is contained within the Cretaceous Newcastle sandstone formation. Average formation dip is 25° to 45°, depending upon where the dip is measured within the synclinal basin on the property. Reservoir depths range from the surface in the east to 2,500 ft (763 m) in the west.
Previously, several producing companies had conducted exploration and production activities at the LAK Ranch property. None were successful in attempts to recover oil economically using various improved recovery technologies, including Parent Oil's "huff and puff" solvent flood pilot in 1957-1958 and Conoco's steam stimulation pilot in 1965. Additionally, a well was drilled on the property in 1974 to test using electricity to lower oil viscosity.
Based on a compilation and analysis of previous work carried out up to the 1980s, Surtek Inc. came up with an in-house estimate of more than 100 million bbl of oil beneath the property. Under contract to Derek in 1998, geochemist Dr. Paul Trost conducted a four-well drilling program at LAK Ranch. That drilling confirmed earlier reported reservoir characteristics and substantiated Surtek's previous oil resource estimate.
The LAK Ranch reservoir and oil have the following characteristics:
• 18% to 25% porosity;
• 600-md to 2,200-md permeability (average 1,800 md);
• 70% average oil saturation;
• 20°average API gravity;
• 5.55°C (42°F) average reservoir temperature;
• 3,300 cSt viscosity at reservoir temperature of 42°F (6°C);
• 634.4 cSt viscosity at room temperature of 73°F (23°C);
• 0.3075% sulfur content;
• less than 1 psi Reid vapor pressure 73°F (23°C);
• napthenic;
• very low paraffin content;
• 28°F (-2°C) pour point; and
• high alkaline sensitivity.
Work and studies carried out by project director John Donnelly, along with Trost and independent consulting engineers, indicated LAK Ranch oil could be recovered economically using SAGD and related technologies, with possible recoveries of 50% to 70%.
Stacking wells for SAGD
The Alberta Department of Energy developed SAGD technology originally as an enhanced oil recovery technique. The technology makes use of two closely spaced horizontal wells (a well pair), one above the other, to recover oil with poor flow characteristics. Precise drilling and placement of the well pair into the reservoir is critical. Steam is injected into the upper well, which heats the surrounding oil and decreases its viscosity while increasing the pressure in the reservoir, creating a chamber of liquefied oil and condensed steam. The heated oil then migrates to the lower well and flows to the surface, where the water is separated from the oil stream.
SAGD is used extensively in commercial oil sands bitumen and heavy oil recovery operations in Alberta and Saskatchewan. In the United States, three SAGD well pairs have been installed in the Santa Maria and Taft areas of California, with some resulting oil production.
In September 1999, Derek signed an agreement with Bateman Engineering (now Bateman-Merrick Group) to develop, construct and start up the LAK Ranch project. The first well was spudded in June 2000, using a Caza Drilling Co. rig. Sperry-Sun Drilling Services supervised directional drilling, using its proprietary MGT/MWD magnetic ranging technology. The producer well, Derek No. 1-P, was completed July 10, 2000, with a measured length of 3,213 ft (980 m). The well's horizontal portion extended to 1,810 ft (552 m) and encountered 1,639 ft (500 m) gross of Newcastle sandstone. The injector well, Derek No. 2-I, was drilled about 24 ft (7 m) above the producer and completed July 29. The only unexpected drilling event was the intersection of 10 to 12 small offsetting faults, with possible offsets of 5 ft to 15ft (2 m to 5 m).
Surface construction of the SAGD pilot plant continued during the winter of 2000-2001. At the same time, a 6-mile (10 km), 4-in. gas pipeline was laid to bring fuel for the project's 22 MMBtu skid-mounted steam generator. The pipeline is designed to deliver up to 1.5 MMcf/d of gas to the project location. The SAGD pilot plant has sufficient oil treatment, handling and storage capacity for up to 2,000 b/d.
Cyclic steaming of the pilot LAK well pair began March 10, and steam breakthrough communication between the wells occurred March 18. SAGD operations began a day later. Through mid-July, about 3,400 bbl of oil had been produced, even though the pilot plant had been operating intermittently at only about 50% of capacity.
As a pilot, the project presented several engineering challenges. In one case, the steaming process pushed out drilling mud. This was attributed to formation damage sustained during drilling. Until the loose drilling mud was eliminated from the recovery system, it precipitated in low spots and also contributed to oil-water emulsion formation. The emulsions were broken, however, by combining a fresh water wash and a small quantity of demulsifying agent (Baker Petrolite 2256). Future drilling will incorporate this knowledge to minimize formation damage and related mud loss.
Another problem involved steam quality. The pilot plant was engineered for 100% steam quality. At such high quality, however, the steam was sufficiently acidic to cause an oil-water emulsion that proved difficult to separate. Reintroducing water from the separator into the injection fluid stream solved the problem. This modification resulted in 80% steam quality with a higher pH (7.5 to 8.0), which alleviated the acidity and emulsion problems.
Oil cut has increased steadily from about 1% at the start of SAGD operations to about 10%.
Derek is satisfied with the results of pilot plant testing and operation. The company is installing additional wastewater disposal capacity that will allow the plant to operate at 100% steaming capacity. Steam operations were expected to resume in mid- to late summer.
Derek is working with the Bateman-Merrick Group and others to investigate the possibility of building a cogeneration facility at the project to lower operating costs, in light of highly variable gas costs.
Capital costs include about $1.6 million for drilling and about $4.8 million for surface facility construction. The cost of full-scale production facilities at LAK Ranch are estimated to be in excess of $100 million, with production expected to be 10,000 b/d to 20,000 b/d. However, much engineering and feasibility work is needed before costs and production estimates can be finalized.
Such a full-scale facility at the LAK Ranch would stimulate the economy of the region, which suffers from high unemployment and population loss. The estimated life span of a full-scale SAGD operation at LAK Ranch is 15 to 20 years.

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