Large-scale development delivers improved yields in the Permian
Encana (ticker: ECA) released an update to its Permian operations today, outlining the company’s current practices in the world’s most popular shale play.
Instead of drilling a few wells in a given section then returning later to infill drill, Encana is “developing the cube.” This is how the company refers to drilling as many wells as possible at one time. This typically involves large multi-well pads drilled using several rigs at the same time and completed with multiple frac spreads simultaneously.
Infill drilling has advantages and disadvantages
The infill drilling system is commonly used in current development, as it allows companies to easily hold acreage by production. Additionally, if a company is uncertain what well spacing will yield the best returns, infill drilling allows the company to use pilot projects to optimize spacing, and then apply that across its already held acreage.
On the other hand, the infill wells drilled later often do not perform to expectations.
According to Encana, in over 50 parent-child case studies in the Midland Basin, the majority of results indicate child wells significantly underperform parents. Encana believes that this is because infill wells sometimes frac into the already-depleted section of reservoir around the original wells. In addition, fracturing a new well next to an existing well often means the existing well will begin producing fracturing fluid in a frac hit. This forces the existing well to shut down to clean out.
Source: ECA Investor Presentation
Developing the cube avoids many of these problems. According to Encana, each of the wells drilled using this strategy produces as well as the parent wells in infill drilling. This means the overall section is more productive. In addition, having multiple rigs and frac spreads on a single pad makes sharing information and improving efficiencies easier. As Encana EVP and COO Michael G. McAllister put it, “No rig or spread wants to be the slowest on our pads.”
Currently evaluating 60-70 wells per section – looking to drill 10,000-foot laterals
Encana is currently running several pilot programs to evaluate spacing for its cube development. These pilots are testing spacing around 65 wells per section, targeting five different benches in the section. A total of 45 cube wells are on production now, and Encana reports they are among the best results in the industry.
Source: ECA Investor Presentation
Like many other Permian operators, Encana is actively seeking to consolidate its acreage. Large acreage blocks allow companies to drill longer wells, and consolidating acres can have a significant effect on well results. Encana has completed 14 acreage transactions since it entered the basin, and expects 40% of its premium locations will be drilled with 10,000 foot laterals.
Source: ECA Investor Presentation
Permian production to triple or quadruple in next five years
These improvements will be needed, as Encana has big plans for its Permian acreage. More than half of the company’s CapEx will go to the Permian, and the company expects to drill about 140 wells in the basin this year. Over the next five years Encana expects its Permian production will grow 3-4x, with a five year CAGR of 30%.
