Identifying Drivers for Developing Unconventionals
In his presentation entitled Critical Emerging Concepts in Unconventional Resource Exploitation at Shale Gas Results in Europe 2011 in Warsaw, Poland, Allen Gilmer, Chairman and CEO of Drilling Info International showed a graph of US unconventional production. From its dead start in 2002 he said that 42,000 wells had now been drilled.
“Now the US is producing the equivalent of 3.3 million barrels a day,” he remarked, noting that, of course, that things have changed a bit for unconventional plays in North America.
Gilmer explained: “When the price collapsed we effectively transitioned to liquid resource plays. Now we’re producing a tremendous amount of liquids. At the end of the day these plays are huge fields and as we start recognizing the reserve additions by field, this 15 year period is probably going to be the most prolific.”
He spoke of the drivers for the development of unconventionals: the 1st order rock issues, which needed to be solve first, and only then was it possible to solve for engineering and best practices.
“How big is the pot?” he queried, saying it depended on things like thickness, porosity, and pressure.
He followed up on his own question: “How loose is the lid, how easy is it to get this out? Brittleness is a major factor. What’s in the pot? The TOCs, cooking indices, and the kerogen types.”
Among the engineering drivers, Gilmer stated that wellbore design was one: vertical versus horizontal; horizontal length; and azimuth.
Was it true, he questioned, that a horizontal cost twice what a vertical well did, but gave three times the production? Gilmer said he wasn’t always convinced and wanted to figure that out.
In that context, he also spoke of stimulation: multi well versus single well, stages, fluid, etc.
Among the big variables for solving 1st order rocks, he said, were the thickness of the Barnett and its “cooking” index; his presentation also featured colorful maps of relative producible gas in place and graded potential of acreage (or GPA).
“Once this is solved it’s easier to solve engineering issues,” Gilmer said and showed lateral length impact on productivity by rock grade.
Showing a graph of MCF per lateral foot of drilling, which showed a “heal” at around 2,000 feet, after which the production slowly decreased, Gilmer called it misleading that “the heel was producing more than the toe.”
He spoke of the impact of “Simulfrac technology” in the Barnett shale, which showed 250‐400 MCFGE/D more (on average) according to a graph.
“You’re going to drill them and frack them all at the same time. It’s not going to cost me any more, just have to have that much more equipment in place. The zipper frack is the concept of drilling a horizontal bore in the upper portion in the formation and then in the lower portion and then fracking them.”
“It doesn’t cost you that much more and it can be effective,” he said.
Gilmer offered a shale play “failure” comparison and said there was a 70% difference between the worst and the best in the Barnett. He commented, “There will be winners and losers.”
He spoke of the creaming curve concept to map out operators 6-month progress within the Barnett: “It follows these operators and if they do something good, the curve breaks upwards. The Scorpion plot is more of a portfolio analysis tool.”
“It takes $100 million to test a great play,” explained Gilmer. “Chemical companies and mining companies contend that drillers are not cut out for this type of development; the O&G industry used to do things internally, then they outsourced it to the service companies and were living in a world of scarcity. Some of it’s regulatory. The mining companies are looking at this and saying ‘why don’t we buy all this stuff and turn it into a mining operation?’”
He added: “We’re going to see some big movements of capital to try these big changes.”
Gilmer said he had plenty of examples of companies going from two wells to 200 wells in less than a year. “Some can’t fathom this,” he said, “because of lack of equipment.”
Regarding some of the necessary resources, he said: “We’re learning right now how to clean water – that’s a bigger deal than an oil field.
“It’s an exciting time to be in the business and the resource base is unbelievable. How we’re going to exploit it is still up in the air.”
On conference participant asked Mr. Gilmer if it wasn’t a better solution for Europe to import North American LNG rather than develop its own unconventionals.
First, he noted that it was illegal for the US to export natural gas (without prior approvals of the US Department of Energy).
“If you look at South America no one’s using the pipelines, they’re all using LNG. BG’s profits are all from arbitrage. You can swap the contract, and at the end of the day it’s going to depend on the political will,” he explained.
Gilmer continued, “The world will have a lot of natural gas. One of the reasons NA has done this is the 8 million royalty owners in the US - it’s not money lost into a ministry. Those folks are our loudest proponents. That’s why in so many cases I think it’s been a benefit for us.”
“Every country that is endowed with this treasure has the obligation to exploit it,” he concluded. “I think it’s our job to make a geopolitical case for the resource. I can guarantee you with the appropriate policies the services problems disappear.”