Commercial Program
Industry Overview
The oil and gas industry is driven by the Major Oil Companies and the Mid-Sized Companies that have strong technical and operations staff and have access to finance and capital markets. The present fracking segment is focused on quick return projects, say within two to three years, in a continual sequence of new well drilling and completion and rapid depletion.
The DF2S is a stand-alone waterless and chemical-free system that would be installed by the oil producer or his field contractor within the normal well drilling parameters and procedures. The DF2S would operate as an oil and gas production factory for a nominal twenty-year cycle, with essentially constant production levels, and could operate for longer periods if desired. In essence, the operation involves application of electric power in and the production of oil and gas as an output.
The service companies, including Schlumberger, Halliburton. BJ, Baker Hughes and Weatherford are candidates to provide support for DF2S installation and operation. Each has a constituent relationship with various oil companies and would conduct drilling and field support as a contractor to an oil company installing the DF2S. We are examining associating with service companies in some fashion – partnering, licensing, venturing, or investment in Highland Light
Market
There are multiple market segments where this new technology would be valuable. The DF2S hardware and process would be very similar for all market segments. Our production models now in development would be used to evaluate system configurations in all possible market segments. The System solves two major problems that exist in unconventional oil and gas extraction. These are the use of water to increase permeability and the very low recovery rates currently attainable 2% to 8%.
It is important to note that the economics of the new system are directly related to the Total Organic Carbon (TOC) in the reservoir. Net Present Value examinations have shown the NPV for lower level kerogen fields is small, and that the NPV for fields with higher kerogen concentrations can be exceptionally high. The highest kerogen concentrations in the U. S. are found in the Mountain States – Wyoming, Utah and Colorado. With DF2S processing, these states could provide production levels comparable to Saudi Arabia. The expansion of DF2S into other areas would involve gaining an operating presence and results in the Mountain States, and then applying our production models throughout the U. S. and internationally to assess and develop promising fields. This further narrows our startup market segment geographically to the mountain states. And this is our initial market concentration, accessing the 1.2 trillion bbls projected by US DOE through in-situ retort in Colorado, Utah and Wyoming.
In terms of the international market, there are target areas defined in the Middle East and in South America. We believe the best way for DF2S to proceed is in concert with the Major Oil Companies, who have the resources and international presence and commitment.
Market Size
Our initial target is the high kerogen area in the Mountain States. DOE has identified 1.2 trillion barrels of oil available for recovery, with proper systems and procedures. Frackers cannot perform the kerogen conversion – so this market is undeveloped. This level of production would increase the U. S. oil proved reserves by a factor of ~ 35. BLM sponsored projects in the past to extract oil from these high kerogen areas, but none of the projects are in operation. In addition, there are strip mining and cave mining proposals under consideration by mining companies, but their pilot projects have been delayed because of economic and environmental concerns.
Economic projections for our Mountain State operations are very strong, and the payback period for high kerogen fields is similar to fracking (2-3 years). The difference being the System operates at a constant production level for 20 years, vs. the short cycle (18 months) for fracking. This establishes a base production level vs. repeated cycles of new fracked wells.
In this approach we get our commercial system in the ground and gain credibility. At the same time, we will enhance and improve system economics - and with the oil companies will use our production models and the oil company respective field data to expand System application to lower kerogen fields.
We can recover the Rockies 1.2 trillion barrels of oil and increase dramatically the US proved oil reserves. And with the oil companies, we will select sites for post processing of the previously thousands of fracked fields. We recover 60 – 80 per cent of the hydrocarbons vs. the frackers 2 – 7 %.
Commercialization Strategy
The best way to draw in oil companies is to enlist their participation in reviewing our R&D results; their getting a sense of DF2S economics; and in inviting them to participate in our pilot well planning. Our interviews with oil companies have confirmed interest in this approach. We have on going sharing of DF2S production model results and test data with oil companies; and in turn are receiving oilfield data on their shale fields for input to our models.
We have created a program offering to selected companies and published as the Highland Light Dry Fracture Oil Shale Pilot Initiative - that incorporates oil producers and oilfield service companies into a joint effort to review our R&D and to participate in pilot well planning. In this process the oil companies employ our production models, currently in development but sufficient now for assessments, to measure their own reservoir economics in employing the Dry Fracture Shale System (DF2S). We have found the field geologists and managers are enthusiastic in sharing their own field data and in sizing up our system. They have become our best sales force in dealing with oil company HQ and decision making. Selling new technology to oil companies is a challenge. And gaining the support of the field staff is the best way in. This is our commercialization approach, and it is underway. In the process the oil companies will participate in selection of the pilot well siting and will see the functional and commercial metrics first hand - in their own back yard. This is then a straight forward transaction to go from pilot to commercial contracts and operations.
Our System will be drilled and installed by the oil service contractors under contract by the oil companies. We have concentrated on the service companies and are working on selection of one as a production partner, who could also be an investor or licensee.
We have a 36 month development program underway to present our proven commercial offerings. These offerings will go first to the oil company partners in our pilot initiative. We are enlisting a consortium of oil E & P companies and service companies to join and to examine the DF2S design and program potential. Highland Light will provide information on the DF2S design (unique downhole, 3-dimensional electromagnetic energy array) and the 20 year, constant level lifecycle performance. Our commitment to our participating Oil E&P companies includes:
- We will detail the associated research and pilot testing program.
- We will develop and supply the DF2S system components for pilot operations.
- We will coordinate with the selected oil E & P partners on the installation and operation of the well systems and on the technical and financial performance assessment of the pilot system.
- We will provide installation, operations and maintenance guidance and procedure.
- With the E & P partners, we will examine candidate site locations for an optimal pilot siting.
- Based on pilot operations, we will project the commercial performance of DF2S and will coordinate with oil companies in offering commercial projects.
This process allows selected oil companies to examine the Dry Fracture Shale System (DF2S) as it relates to their respective reservoir characteristics and associated economic and public policy conditions. This examination precedes commitment to a project, but does afford the review of the progression of the DF2S, from research to in-ground pilot wells to commercial installation.