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Page added on September 2, 2013
the latest field development to coax more oil out of the ground
It may not be sexy, or fodder for water cooler chit-chat, but one of the hottest things going right now in shale and unconventional plays is a development technique based on a savvy, complex set of calculations: well spacing.
While several large resource plays across North America—such as the Bakken Shale in North Dakota and the Eagle Ford Shale in South Texas—have been widely produced for several years now, and output there is booming, oil companies only now have reached the point where they are figuring out how to optimally drill them to best advantage.
The ultimate goal is to maximize the…value of the asset,” Stifel Nicolaus analyst Michael Scialla said. “Oil and gas that might not otherwise be recovered for 30 years or later, you’re suddenly moving up to Year One by putting more wells in the unit. There’s an economic benefit to moving those cash flows forward.”
Simply put, optimal spacing—or downspacing, as it’s sometimes called—is an educated guesstimate based on trial and error to determine the least amount of space required between wells that best drains the reservoir. Typically companies “start wide” on a 1,280- or 640-acre spacing unit, and then zoom in and drill wells increasingly closer together. In the past this could be as much 320 acres apart, although operators have now commonly narrowed this down to as much as 160 acres or as few as 40 or even 20 acres.
The Bakken and Eagle Ford are in the forefront of downspacing tests, since companies have produced unconventionally there longer than in other plays, Robert W. Baird analyst Hsulin Peng said.
“In the Permian Basin, for instance, they’re still trying to figure out what geologic intervals” are most productive, Peng said. “So a lot of [downspacing stems from] the maturity of the play.”
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However, less spacing isn’t always the better option, according to a 2012 report on Bakken infill drilling by independent oil and gas reserves certifiers Ryder Scott. The report also found that:
• Finding and development costs per incremental volume increase with well counts, because each additional well has fewer incremental reserves.
• Optimum spacing density is largely a question of economics. Overall estimated ultimate recovery rates generally increase with downspacing but incremental recoveries decrease with each infill because of well interference.
• Optimum spacing densities depend on reservoir quality, local cost and price environment and internal economic criteria.
“Despite a push to downspace, industry doesn’t fully understand how productive and profitable original and infill wells will be over the full life cycle,” the report said.
Still, in a presentation this year, Swift Energy showcased some advantages of downspacing. The company showed that in its Eagle Ford areas, 80 acres in general had the best initial well production rates—in one case, 1,200 b/d of oil versus not quite 1,000 b/d on 160 acre spacing.
Oil companies appear to have whole-heartedly embraced downspacing. For example, EOG Resources, a star Bakken player, has a 160-acre well spacing program in that play’s Parshall field in Mountrail County. Based on an evaluation of its downspacing program so far and of the productive Three Forks formation just below the Bakken horizon, EOG has boosted its total Bakken/Three Forks drilling inventory from seven to 12 years, William Thomas, the company’s new CEO, said during a quarterly conference call last month.
EOG also said in its most recent investor presentation that, in the Eagle Ford, it now places 16 wells rather than 10 in an 640-acre spacing unit (i.e., on 40-acre spacing instead of a previous 65 acres). And while it gets slightly less reserves per well (400,000 barrels of oil equivalent versus 450,000 boe) on tighter spacing, it can recover 8% instead of 6% of the resource and obtain 6.4 million boe over the 640 acres rather than a previous 4.5 million boe. And return rates still top 100% while well costs remain the same, EOG said.
Even though downspacing is less common in the Permian, Pioneer Natural Resources is currently testing the B-bench or subzone of the southern Midland Basin’s Wolfcamp formation on 80-acre spacing; that is nearly half of its former 140-acre pattern.
“We see no reason that won’t work,” Tim Dove, the company’s chief operating officer, said during the company’s quarterly call in August, adding results would be unveiled over the next couple of quarters.
Pioneer is also testing Eagle Ford downspacing on 40 acres, compared to an original 115 acres, said Dove, particularly in the play’s oilier northern areas; it is also trying 10,000 foot laterals, or horizontal legs, there versus its recent averages of 5,500 feet.
“To the extent that’s successful…it will dramatically increase” the company’s future drilling inventory by “hundreds” of wells, he said. –Starr Spencer in Houston
7 Comments on "the latest field development to coax more oil out of the ground"
rollin on Mon, 2nd Sep 2013 1:59 pm
A 640 acre site is about one square mile. Don’t 10,000 legs infringe heavily on other sections?? Do companies have legal battles over this?
This could be a sign that the sweet spots are known and being developed completely rather than drill the reduced output areas.
DMyers on Mon, 2nd Sep 2013 2:07 pm
This could be entitled, “Confessions of a Mad Oilman.” Or, in tabloid fashion, “True Oil Industry Intentions Revealed.” The article is, at any rate, a real tell all.
This is their game plan, to ravage this resource like there’s no tomorrow.
“Oil and gas that might not otherwise be recovered for 30 years or later, you’re suddenly moving up to Year One by putting more wells in the unit. There’s an economic benefit to moving those cash flows forward.” [quoting from the article] In other quarters, this has sometimes been called stealing from the future.
They’re going to deplete the resource at a fantastic rate. This does not increase the content of the specimen, it merely exhausts what is there sooner.
And this is presented as a “latest development.” Why, it’s as brilliant as a five-year-old’s epiphany as he stumbles upon the realization that five straws in the glass make it go empty a lot faster than one.
CAM on Mon, 2nd Sep 2013 2:25 pm
Further confirmation that we are scraping the bottom of the barrel,–as if further confirmation is really needed!
bobinget on Mon, 2nd Sep 2013 2:35 pm
Published: Sun, September 1, 2013 @ 12:00 a.m.
By jamison cocklin
jcocklin@shalesheet.com
youngstown
A mix of organic-rich shale and sandstone rock above the Marcellus formation, first tapped for natural gas in the early 1800s, is once again gaining the attention of exploration and production companies operating in both Ohio and Pennsylvania.
In July, Pittsburgh-based EQT Corp. and Consol Energy announced the completion of horizontal wells in the Upper Devonian shale formation in southwestern Pennsylvania. They join Rex Energy of State College, Pa., which drilled its first Upper Devonian well in Butler County, Pa., last year, and Texas-based Range Resources, which drilled its first in 2009.
Drilling in the Upper Devonian isn’t poised to take off anytime soon. The formation has long been thought to hold a cache of dry natural gas. Last week, the commodity slid to its lowest price in more than five months on word from the U.S. Energy Information Administration that supplies had spiked, driving it well below $4 per million British thermal units.
However, exploration and production companies, better equipped to unleash oil and gas trapped in the impermeable rock underground with horizontal hydraulic fracturing, have been keenly aware of the Upper Devonian’s presence in Pennsylvania, Ohio and West Virginia.
An increasing number of those companies have been exploring the formation with well-log data, careful analysis and mapping to determine its potential as an emerging play.
“This is important for them. It represents a significant addition to their reserves,” said Terry Engelder, professor of geosciences at Penn State University. “It’s important to all three of the latest companies. With the acreage and well pads established across the Marcellus, the Upper Devonian represents an additional resource.”
At about 6,000 feet underground, the Upper Devonian lies above the Marcellus formation, which is part of the Middle Devonian. The sediments that make up the Middle and Upper Devonian were deposited in broad intercontinental seas roughly 390 million years ago. The Utica formation is older and deeper. It lies about 8,000 feet underground, and it was formed roughly 450 million years ago.
As organic matter is buried and rock begins to form, it is exposed to varying pressures and temperatures at different depths. The rock’s thermal state determines its oil and gas content over time.
Deeper rock at higher temperatures actually can be cooked to the point where all of its oil and gas are depleted.
Engelder said it’s possible that because the Upper Devonian is shallower, it could be in a liquid-rich window. Natural-gas liquids are more valuable at the moment. They can be used to make premium products such as plastics, and oil is priced far higher than natural gas.
Still, only about 20 horizontal wells have been drilled in the Upper Devonian in Pennsylvania, with most producing dry gas; more exploration will be required for the industry to gauge what exactly the formation can produce.
By comparison, thousands of wells have been drilled in the Marcellus, and hundreds have been drilled in the Utica.
“The [Upper Devonian] seems like it could be prolific, but there doesn’t appear to be a ton of liquids,” said Will Green, an energy analyst at the investment bank Stephens. “It’s mostly dry gas from what I’ve seen. What’s nice about the Utica is you’re getting liquids and good margin wells. We’ll keep an eye on the Devonian, but we’re more concerned with the Marcellus and Utica.”
At a presentation last October, Jared M. VanMeter, a geologist at Range Resources, called the Upper Devonian a “viable play.”
Engelder said the formation consists of six rock layers that have “shale-gas potential.” At the time of Van- Meter’s presentation, Range had identified three of those formations — the Burkett, the Rhinestreet and the Middlesex — as having the potential for exploration and production.
Consol drilled its Upper Devonian well into the Burkett, the deepest layer in the formation. The Burkett does not extend into Ohio, but the Rhinestreet and Middlesex could be a potential target for operators here.
Thomas Stewart, executive vice president of the Ohio Oil and Gas Association, said there hasn’t been nearly as much Upper Devonian activity in Ohio as there has been in Pennsylvania. It’s mostly just tests thus far, he said.
Stewart said that in the 1970s and ’80s, “there was a frenzy of drilling into the Devonian.” In those days, operators drilled vertical wells straight down through multiple formations to extract oil and gas from each.
“Over time, oil and gas companies have drilled 30 different formations that have produced oil and gas from shallow wells at 50 feet, to those as deep as 9,000 feet,” Stewart said. “There are lots of opportunities here and multiple targets, but better technology is the key today.”
shortonoil on Mon, 2nd Sep 2013 2:35 pm
Its called gaming the system. Put $8-10 million into an oil well. Depreciate it out over twenty years, and then pump the reservoir dry in three. Voila – instant profits. These shale outfits are sooo.. dam clever!
GregT on Mon, 2nd Sep 2013 3:14 pm
We have been repeatedly warned of the consequences of burning the remaining oil reserves. Profit today in exchange for the well being of the future of mankind and all life on earth.
If we continue to let this go on, we deserve the future that we will be forced to endure.
BillT on Tue, 3rd Sep 2013 3:18 am
GregT, a few of us see what you are saying and see the end in sight. Unfortunately, those in power only see profit, wealth and power. Insanity is running our world today.