Option Values of Alternative Completion and ProductionStrategies 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, DCOctober 12, 2011

Shale Gas Plays

These wells are depleting so quickly thatthe operators are in an expensive gameof catch-upDeborah 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 PlaysImpact 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.

ModelThe fracture sub-production function is also a functionof reservoir characteristics and completion choices:

ModelWe 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.

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