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Shale Gas Plays

Option Values of Alternative Completion and Production Strategies in Shale Gas Plays Janie M Chermak, University of New Mexico James Crafton, Performance Science Inc., Robert Patrick Rutgers University 30th USAEE/IAEE North American Conference Washington, DC October 12, 2011. Shale Gas Plays.

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Shale Gas Plays

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  1. Option Values of Alternative Completion and ProductionStrategies in Shale Gas PlaysJanie M Chermak, University of New MexicoJames Crafton, Performance Science Inc.,Robert Patrick Rutgers University30th USAEE/IAEE North American ConferenceWashington, DCOctober 12, 2011

  2. Shale Gas Plays

  3. “These wells are depleting so quickly thatthe operators are in an expensive gameof catch-up” Deborah Rogers, 11/2009

  4. 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)

  5. Shale Gas Plays Impact of shale gas on the natural gas industry depends on: - actual production meeting forecasts - ultimate recovery

  6. 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

  7. Model • Develop a theoretical dynamic optimization model • that allows for periodic capital investment over • the life of the well. • Based on the necessary conditions we develop • an 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.

  8. Model The fracture sub-production function is also a function of reservoir characteristics and completion choices:

  9. Model We estimate this simultaneous system of equations using 3SLS and a log-log specification.

  10. 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

  11. 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

  12. 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.

  13. 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

  14. 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.

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