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TitleEconomic implications of drilling sequence in shale gas development, example from Horn River Basin, Canada
AuthorChen, Z; Osadetz, K G
SourceCanadian Society of Petroleum Geologists, Canadian Society of Exploration Geophysicists, Joint Annual Meeting, Abstracts 2015.
Year2015
Alt SeriesEarth Sciences Sector, Contribution Series 20140394
PublisherCSPG
MeetingCSPG Geoconvention; Calgary; CA; May4-8, 2015
Documentserial
Lang.English
Mediapaper; on-line; digital
File formatpdf
AreaHorn River
Subjectseconomic geology; shales; gas; drilling techniques; drilling; economics; Estimated Ultimate Recoveries (EURs); internal rate of return (IRR); payback time (PBT); net present value (NPV)
ProgramShale-hosted petroleum ressource assesment, Geoscience for New Energy Supply (GNES)
LinksOnline - En ligne
AbstractUnconventional shale gas resource development involves intensive capital investment with considerable risk for commercial production. Economic appraisal, bringing together multidisciplinary project information and providing likely economic outcomes for various development strategy scenarios, forms the heart of development decision making. Conventional economic appraisal uses either, the average size or a size distribution of well EURs as an economic measure, but commonly does not consider the potential impact of the order of drilling, a ¿discovery sequence¿ analogue in conventional exploration, on the economic outcome of a shale gas development project. This study examines the impact of drilling order, as it pertains to the rank of well or ¿leg¿ EUR¿s on project economic performance. Any given well or ¿leg¿ drilling order, each with its own unique EUR, is essentially a result of a sampling scheme with a probability that is proportional to the unique well EUR. This permits us to adapt the ¿discovery process¿ model approach commonly used in conventional petroleum exploration to generate drilling sequence scenarios, each of which represents a possible development strategy. The resulting production forecasts are then evaluated using a discounted cash flow model to examine the economic implications of different drilling sequences or strategies. The net present value (NPV), internal rate of return (IRR), payback time (PBT) and break-even price are all used as economic criteria against different drilling strategies. To illustrate our analysis we use the monthly historical production rate from Horn River Basin hydraulically fractured wells. We infer well EURs using common decline models to compose a statistical sample that represents the natural gas productivity variation in the basin. Under the assumptions of a natural gas wellhead price of $4/mcf and a 10% of discount rate, our study shows that the drilling sequence as a function of well EUR, can have a significant impact on the economy outcome of shale play development. A random drilling strategy could lead to a negative NPV; whereas a drilling sequence that seeks to prioritize drilling by targeting the larger EUR wells early in the drilling sequence, results in a positive NPV with various PBT and IRR. This implies that early identification of sweet spots combined with an appropriate development strategy to maximize production through the prioritization of drilling targets is crucial to economic success.
Summary(Plain Language Summary, not published)
Shale gas development involves intensive capital investment with large risk in commercial production. This study examines the impact of drilling order on project economic performance. To demonstrate the impact, the Horn River Basin production is taken as an example. Our study shows that drilling sequence can have a significant impact on economy outcome of shale gas development. Early identification of sweet spots combined with an appropriate development strategy through prioritization of drilling targets is crucial to economic success.
GEOSCAN ID295735