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
“These wells are depleting so quickly that
the operators are in an expensive game
of catch-up”
Deborah Rogers, 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 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.
Model
The fracture sub-production function is also a function
of reservoir characteristics and completion choices:
Model
We estimate this simultaneous system of equations using
3SLS 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.