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Exxon Mobil to spend $340m on new technology for 70-year-old East Texas oil field

EXXONMOBIL Corp. plans to spend $340 million to boost production of one of Texas’ oldest oil fields.
The Irving oil giant will add technology to extend the life of Hawkins Field in East Texas by 25 years and to draw 40 million more barrels of oil from the reservoir. Exxon has been producing oil at the field near Tyler for 70 years, since the company was known as Humble Oil.

The investment is an example of Exxon’s return to Texas and its attention to regions of the world with stable governments.

“We’ve been operating many, many fields for 60, 70 years. We’ve got wells that go back to the 1930s. That’s a very long-held commitment to the state,” said Stu Jeffries, Exxon’s production manager for Texas.

He said the investment, which Exxon will announce today, is “a good indication of our confidence that we’ve got an ongoing operation that continues to be important.”

New technology could help Exxon and its peers produce more oil and gas from existing fields, rather than spending even more money on new, exotic locations. Many oil companies across the state are trying out various technologies to revive aging fields.

Exxon’s new technology will allow the company to reuse nitrogen that it injects into oil wells to push more oil and natural gas to the surface.

The company already injects nitrogen culled from the air into the Hawkins wells. But the nitrogen mixes with the natural gas, making it difficult and sometimes impossible to sell the gas.

Exxon plans to build a new facility to separate the nitrogen from the natural gas when it comes out of the well. Exxon can then sell more of the natural gas and reinject the nitrogen underground.

Exxon plans to begin construction in the first quarter and to start using the equipment in late 2011.
“You may be able to increase the recovery quite a few percentage points compared with the overall investment in the field. It’s a pretty high return on investment, and it’s a pretty safe investment compared with maybe spending $340 million somewhere else in the world,” said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.

For example, Exxon is reportedly negotiating to buy a stake in an offshore field in Ghana, but the government is leaning toward a sale to China’s National Offshore Oil Corp. Several years ago, Exxon walked away from its investment in a large oil field in Venezuela after the government changed the terms of its oil deals.

“Given the issues that the industry faces concerning access to new upstream opportunities, whether it’s because of more competition from other players around the world or environmental restrictions or what have you,” turning to old fields makes sense, said James Burkhard, an oil analyst for  Cambridge Energy Research Associates Inc.

Last year, Exxon expanded its operations in Colorado, where the company has been drilling for natural gas for decades. And last month, Exxon announced a deal to buy , a domestic natural gas producer with large operations in the North Texas Barnett Shale field.

The $340 million investment in East Texas is small for Exxon, which spent $26 billion on capital projects last year. And the East Texas plans are tiny considering the $41 billion Exxon will spend on XTO.
But the Hawkins plans are significant compared with the $700 million Exxon has spent in Texas for the past three years combined.

Vinson & Elkins energy expert Steve Davis said the investment represents an experiment for Exxon.
If it works, the company can potentially apply the technology to other fields.

“This is $340 million. It’s nothing to these guys,” he said, but added: “Their investment criteria are so stringent, that I would think there’s a high likelihood of success.”

Vinson & Elkins partner Mark Spradling pointed out that despite years of oil production in Texas, about a third of the original oil is still in the ground. While the Hawkins field has already yielded more than 800 million barrels of oil, Exxon thinks it can squeeze out at least 40 million more.


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