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Option Values of Alternative Completion and Production
Strategies in Shale Gas Plays
Janie M Chermak, University of New MexicoJames Crafton, Performance Science Inc.,
Robert Patrick Rutgers University
30th USAEE/IAEE North American ConferenceWashington, DC
October 12, 2011
Shale Gas Plays
QuickTime™ and a decompressor
are needed to see this picture.
“These wells are depleting so quickly thatthe operators are in an expensive gameof catch-up”
Aubrey McClendon, 11/2009
Shale Gas Plays
• PRODUCTION- 2008: 2.02 trillion cubic feet (Tcf)- 2009: 3.11 Tcf
• RESERVES- 860 Tcf, with 410 Tcf from Marcellus
(EIA AEO 2011)
- 84 Tcf from Marcellus(USGS Aug 2011)
Shale Gas Plays
Impact of shale gas on the natural gas industry depends on:
- actual production meeting forecasts
- ultimate recovery
Research
• Actual production- reservoir characteristics- well characteristics- capital choices (completion and re-completion)- production choices
• Ultimate recovery may depend on- all of the above and- early management production decisions
Model• Develop a theoretical dynamic optimization model
that allows for periodic capital investment overthe life of the well.
• Based on the necessary conditions we developan econometrically estimable cumulative production function:
X is a vector or reservoir characteristics and Z is a vector of completion and production choices. Included in Z are characteristics of the completion job, including the fracture half-length, Fi.
Model
The fracture sub-production function is also a functionof reservoir characteristics and completion choices:
Model
We estimate this simultaneous system of equations using3SLS and a log-log specification.
Data
• 120 shale gas wells located in the US- 39 horizontal wells- 81 vertical wells
• all wells began production since 2007
• have between 30 and 720 days of production data
• production data
• reservoir characteristics
• completion and production choices
• Well Characteristics- permeability thickness- Initial Reservoir Pressure- Perforated Interval
• Completion Choices- Gallons of fracture fluid- Pound of proppant- Barrels per minute- PSIG- Stages- Micro-emulsion concentration- 100 Mesh- 2040 Equivalent Mesh- Winter Fracture- Time between completion start and first production
• Completion Outcome- Fracture Half-length: final and early- Fracture Conductivity
• Cumulative Production- 10, 30, 60, 90, 1870, 360, 720 days- Ratio: Production Days to Calendar Days
Results
• The fracture resulting from the completion job is significant and positive for early period production
• Fracture conductivity significant and positive for vertical wells
• Micro-emulsion concentration has a positive and significant impact
• The completion job is significant. For horizontal wells it is how the job is performed (rate and pressure); for vertical wells it is the volumes and how the job is performed.
Results
• Stages are significant and positive for horizontal wells, but not for vertical wells
• Delay between beginning completion and production significant and negative
• Ratio is significant and negative
• Winter completion job negatively impacts vertical well production
• Decline (all else equal) different. Early period decline 7% larger for horizontal wells
Conclusions
• Shale Gas Plays impacting the US natural gas industry
• May not be as well understood as we first believed
• Initial choices may impact well potential
• Initial choices may impact ultimate recoverable gas
• Preliminary results suggest vertical and horizontal well productivity are impacted by reservoir characteristics, completion and production choices, but not necessarily in the same manner.