Once you’ve locked up the acreage, the permits and the capital, drilling and developing shale plays is fraught with difficult operational decisions. How do companies know if they’re making the right choices when it comes to field development and drilling plans?

SunTrust Robinson Humphrey recently held a conference call outlining operational issues facing U.S. shale producers. In the call, experts discussed the factors that companies will have to address in order to grow significantly.

Lots of acres: how do you choose which acreage to develop first and what’s the best way to develop it?

One major choice all producers face is how to develop their acreage.

Some companies prefer to develop wells using parent/child designs, while others prefer to develop an area all at once. In a parent/child system, only a few wells are initially drilled in a given area. This is often done to hold acreage or assess geology. Infill wells are drilled later, after the initial wells have been producing for some time.

Developing an area all at once is just what it sounds like, an operator drills and completes all the wells it expects it will want in a given area and zone. Each well is constructed at roughly the same time, and no well is producing much longer than any other.

The primary problem with developing using a parent/child system is that the child wells are usually not as productive as expected. After a well has been producing for some time, it creates “depleted zones” in its producing fracture network. The mechanics of fracture stimulation means that frac jobs in the child wells are likely to create fractures to these depleted zones, meaning the child wells are trying to produce from already-drained rock.

Developing an area all at once avoids this problem, as wells that are completed at the same time are less likely to fracture into the same rock. However, developing an area in one go has its own risk. A company that uses this method must be certain about the geology and design, or it will pay a high price. A company that develops at a more rapid pace must rely only on pilot programs, and does not get the chance to assess a given area that an older parent well provides.

Rising GORs:  can help or hurt

One factor that can potentially be a positive or a negative for producers is rising gas-oil ratios (GORs).

Producing wells often see gas-oil ratios increase as time goes on. If the overall production on a BOE basis is constant, a higher GOR is generally not good as it means less oil is being produced. While 6 Mcf of gas equal one BOE, the price of oil is more than fifteen times the price of gas, meaning the proportion of gas and oil can be very important for economics. Analysts often express concern that wells are “too gassy” and are not producing enough oil to support expected well economics.

One major Permian operator announced rising GORs in its earnings report last week. The company’s previous wells were producing increasing gas, relative to the oil produced. However, while gas production is higher than expected, oil production is almost exactly at forecasted levels. In this case, the rising GOR is not a problem but a benefit for producers. As long as oil production is not impacted, a higher proportion of gas from a well is simply more product for an operator to sell.

Changing pressures in zones you’re drilling: inviting trouble

One problem that is most prevalent in the Permian is pressure issues.

One major Permian operator recently announced that it was experiencing drilling problems due to unexpected pressure changes in certain zones in the field. Some shallow formations saw pressures increasing, while formations immediately below had relatively low pressures. This creates significant operational difficulties, and many things can go wrong.

The Permian is not the only area that has high and low pressure zones in close proximity, but its long history as one of the country’s main oil-producing areas may have made this problem more severe. Some of the low pressure zones encountered by a new well were oil-producing zones in the past, and have been drawn down by previous activity.

While details on which specific zones are increasing in pressure are sparse, it is likely that these are zones used for disposing produced water. If this is the case, the current Permian activity will only exacerbate this problem. More production comes with more produced water, meaning more water will need to be injected into disposal zones. This will continue to increase the pressure in these zones, forcing operators to adapt to new pressure regimes.


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