DEFINITION of 'Oil Initially In Place - OIIP'

Oil initially in place (OIIP) is the amount of crude first estimated to be in a reservoir. Oil initially in place differs from oil reserves, as OIIP refers to the total amount of oil that is potentially in a reservoir and not the amount of oil that can be recovered. Calculating OIIP requires engineers to determine how porous the rock surrounding the oil is, how high water saturation might be and the net rock volume of the reservoir. The numbers for the aforementioned factors are established by conducting a series of test drills around the reservoir.

BREAKING DOWN 'Oil Initially In Place - OIIP'

 

Oil initially in place is known more simply as oil in place (OIP). It is also referred to by a few variations. Stock tank oil initially in place (STOIIP) is the same volumetric calculation with it being made explicit that the volume being estimated is the volume filled by the extracted oil at surface temperature and pressure rather than the compressed volume the crude oil fills in the reservoir due to geological pressure. Original gas in place (OGIP) is again the same volumetric calculation but for natural gas reservoirs. Finally, hydrocarbons initially in place (HCIIP) is the generic term that can be used for both oil and gas when doing a volumetric calculation to estimate the contents of potential drill site.

The Importance of Oil Initially in Place (OIIP)

Determining oil initially in place is one of the major components taken into account by analysts determining the economics of oil field development. Oil initially in place hints at the potential of a reservoir. This is a critical data point, but it is only the start of the analysis prior to the decision to drill or sit on a lease. Oil in initially in place gives an oil company an estimate of the total number of barrels sitting under the various leases. If all the oil initially in place was recoverable, then oil companies would just need to start at their biggest reservoir and work their way down to the smallest, trying to keep drilling costs fixed along the way. In reality, only a portion of the oil initially in place will ever be recovered and characteristics of the formation will impact drilling costs.

So analyzing oil initially in place is the trigger for further analysis on how much of the OIIP is recoverable with the current technology. The estimated recoverable oil for a reservoir will allow the oil company holding the lease to decide if current prices support drilling and production. For example, if an oil company can only be able to extract 50% of the oil initially in place with current technology, it may make sense to move those acres into its probable reserves and hold them for future development. The company can then use the money saved by not drilling that reservoir to tap a different one with better overall production for the cost of drilling. If, however, global oil prices climb, then the reservoir may be put into production simply because the new price makes the cost of getting that 50% out of the ground economical. For this reason, oil companies are constantly re-evaluating their lease holding and the oil initially in place against global prices to make decisions on where and when to drill.

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