At the heart of the discussion is the notion that shale resources are near infinite, or near enough infinite that claims such as “100 years of natural gas” are bandied about with complete seriousness, even by presidents. Before reaching that conclusion though, it would be wise to not just consider how large the high quality parts are (as done last week) but also how these resources being developed.
A good way to do that is to compare it to a resource that has been extremely well developed. In a twist of irony, a useful (but admittedly not exact) parallel is the world’s largest oil field. The source of the irony is that the field is 100 percent government owned and controlled. One does not often associate government ownership with optimal stewardship, but in this instance we may have to admit that in at least one instance it worked.
The field is Ghawar, Saudi Arabia’s oil production backbone. This monster has been producing since the 1950s and still produces close to 5 million b/d. The reservoir is roughly 160 miles by 16 miles, and Saudi Aramco (operator) has done an impressive job of stewarding this crown jewel, which by itself contained more reserves than all but 7 nations.
Saudi Aramco has applied a sort of finite element analysis to the field, mapping it in three dimensions with millions of data points captured from each well bore and horizontal lateral. Each wellbore has been, where possible, mapped out in roughly one meter increments. The purpose was to build as complete a picture as possible of the numerous fractures and faults that help explain areas of extremely high productivity. By going to such expensive lengths, the reservoir is incredibly well understood, and drilling/waterflood plans are tailored to optimize recoveries throughout the field. This explains how a field of finite size can be producing so strongly after nearly 60 years of development.
Now, let’s turn to the wild west of current reservoir development in major shale formations. A few decades ago, academic studies on the subject of horizontal well optimizations was summed up thusly: “The frontier of horizontal wireline log interpretation is being tamed mostly in Europe, where operators often run many logs to obtain detailed information about reservoir properties and geometry.” It is therefore a bit of a shock to read this 2014 Marcellus study quarterbacked by researchers from Texas: “However, running these geomechanical well logs for the entire asset is not a common practice that is associated with the cost of obtaining these well logs.” The study notes that only 30 of 100 wells in the study have complete well logs.
One hopes that the lack of interest in logging isn’t because of an assumption that the reservoirs are easy to understand, or fully understood. As another academic study points out, “Shale formations often have a complex mineralogy requiring a more sophisticated petrophysical analysis to define the relationship between desirable petrophysical and mechanical properties and elastic rock properties.”
Which brings us to the scary conclusion that companies appear to be skimping on data gathering to save money. A scary conclusion but a highly plausible one. In these capital-starved times, companies have to show that they’re not only setting new records for well productivity, but that they’re doing it for next to nothing. A recent conference call featuring the CEO of Eclipse Resources illustrates the point way better than I could. The company recently drilled a record-length horizontal well (3.5 miles) and blasted it with so many fracks that proppant flew out of local flower beds like spit balls (just a slight exaggeration). In the transcript, the CEO made no reference to reservoir optimization but mentioned cost or cost reduction 7 times (the COO was more technical and only discussed cost 5 times). The closest reference to even the slightest attempt at reservoir management was a comment that “We do not manage our wells for maximum 24 hour IP rates just to get a headline.” That sounds sort of encouraging for those hoping for signs of intelligence, until that notion gets flung out the window in the next sentence with the observation that “we are very encouraged to already be producing at our managed shale target production rates for this well in less than 48 hours of production.” They may not manage IP’s to make headlines, but they mindlessly chew up the best parts of their reservoir to get them. It is a very strange world.
That would be all academic if these extraction wizards (how come every single one of them has wells that exceed type curves?) clearly understood what was going on, and could show it. They talk like they do, and crank out endless slides with images of perfect little fracks all in a row. But then along comes an executive from one of the major fracking companies who admits with admirable frankness that probably 60 percent of fracks are ineffective.
If even part of that is true, and if shale reservoirs are indeed complex, how smart is it to be drilling three and a half mile horizontals in order to brag about low cost-per-foot metrics when there will be no second chance to maximize recovery from that unique piece of reservoir? As has been discussed previously, long-lateral horizontals have long ago exceeded the ability of companies to service the wells properly.
For those who aren’t into esoteric agricultural gossip, feral pigs, when introduced to new environments, quickly destroy the most valuable parts if left unchecked. I take no pleasure in making the comparison, but hey it’s not me screwing up those wonderful reservoirs to make analysts happy.
Read more insightful analysis from Terry Etam here