This report describes work performed during the second year of the project, "Improved Techniques for Fluid Diversion in Oil Recovery." This project is directed at reducing water production and increasing oil recovery efficiency. In the United States, more than 20 billion barrels of water are produced each year during oilfield operations. An average of 7 barrels of water are produced for each barrel of oil. Today, the cost of water disposal is typically between $0.25 and $0.50 per bbl. Therefore, there is a tremendous economic incentive to reduce water production if that can be accomplished without sacrificing hydrocarbon production. Environmental considerations also provide a significant incentive to reduce water production during oilfield operations. This three-year project has two technical objectives. The first objective is to compare the effectiveness of gels in fluid diversion (water shutoff) with those of other types of processes. Several different types of fluid-diversion processes are being compared, including those using gels, foams, emulsions, and particulates. The ultimate goals of these comparisons are to (1) establish which of these processes are most effective in a given application and (2) determine whether aspects of one process can be combined with those of other processes to improve performance. Analyses and experiments are being performed to verify which materials are the most effective in entering and blocking high-permeability zones. The second objective of the project is to identify the mechanisms by which materials (particularly gels) selectively reduce permeability to water more than to oil. A capacity to reduce water permeability much more than oil or gas permeability is critical to the success of gel treatments in production wells if zones cannot be isolated during gel placement. Topics covered in this report include (1) comparisons of the use of gels, foams, emulsions, and particulates as blocking agents, (2) propagation of aluminum-citrate-HPAM gels through porous rock, (3) gel properties in fractured systems, (4) gel placement in unfractured anisotropic flow systems, and (5) an investigation of why some gels can reduce water permeability more than oil permeability. This project receives financial support from the U.S. Department of Energy, the State of New Mexico, and a consortium of 10 oil companies. The technology developed in this project has been transferred to the oil industry in several ways. First, project review meetings are held regularly, with 20 people from 10 oil companies attending the most recent review (November 10, 1994). Second, technical progress reports are issued quarterly and annually. Third, papers are regularly presented at meetings of the Society of Petroleum Engineers (SPE) and are published in SPE and other journals (see Appendix J). Fourth, in conjunction with SPE's Distinguished Lecture Series, the presentation, "Cost-effective Methods to Reduce Water Production," has been given in 40 locations throughout the world.