Originally published on Forbes.com on June 26, 2024
How Capital Efficiency Is Being Bolstered In Shale Plays In Permian And Haynesville.
In a stacked Payzone, a drilling cube is the well geometry that leads to the ultimate capital efficiency.
Success in the shale revolution was so dramatic that oil companies sought to lease new shale properties and drill as fast as they could. The philosophy was growth for growth’s sake. But once the core shale properties, called Tier-1, had been leased up, the financial returns after drilling in lower-tiered properties began to fall. The philosophy gradually turned to maximizing capital efficiency which would lead to greater returns on investment.
Recent History Of Capital Efficiency
- 2003: Breakthrough to success for shale production: a single horizontal well is fracked many times along its length.
- 2003 – 2016: A narrow view of capital efficiency was focused on a single horizontal well: optimizing well length, proppant size and amount, and pump rate.
- 2016-2018: Rapid development of several shale plays through 2018, which was called the year of the fracker. But oil and gas financial returns were less than other industries, investors and stockholders started to withdraw their money, and stocks suffered.
2016: EnCana initiated a new concept called cube development to improve capital efficiency when a shale play is a stacked play like the Permian basin. Parallel horizontal wells are drilled in a few different pay zones. If these wells are drilled from several close-spaced wellheads in a single well pad, the horizontal wells can be mapped into a single imaginary “box”, which is where the “cube” comes from. See Figure 1. How cube development improves capital efficiency is explained below.
- 2018-2019: Attention turned to boosting returns by cutting operation costs while increasing flow rates of oil. One obvious way is to cut rig time by drilling wells faster. Another way is by optimizing frac operations.
- 2020-2021: The downturn in stocks that began in 2019 was exacerbated by the pandemic when the price of a barrel of oil actually fell to zero for a brief time.
- 2022-2023: As the oil and gas industry recovered, a strong emphasis remained on improving capital efficiency. One recent report out of Haynesville said operators expect 30% returns per year.
Examples Of Boosting Capital Efficiency
Example 1, Haynesville single laterals:
Operators in Haynesville gas field, as in other shale resources, are lowering CapEx while improving production. The rig count has dropped (by around 40%) which is a lot more than production has fallen (15%). Fewer rigs means these rigs can produce gas more cheaply and more efficiently.
Aethon Energy, a company out of Dallas, has a creative approach to reducing costs. By using new tools, especially AI (artificial intelligence), they are connecting and analyzing data from many sources to improve drilling and completion results. Such data includes drilling, geo-steering, logs, fiber optic, as well as well treatment designs and actual performance.
The COO of Aethon Energy, Andrea Passman, explains the AI results nicely, “We have redesigned almost every step of the well from spud through drilling, casing design and frac design.”
The results are dramatic. Drilling days have been cut almost in half, and seven stages of fracking implemented per day, compared with five previously.
Example 2, Permian single laterals:
Single laterals have been optimized over the years since 2009 when shale took off in the Permian. By 2018, the year of the fracker, two-mile horizontals with 40 separate frac treatments spaced about 260 feet apart, were optimal.
The concept of cube drilling was a new development, but it allows the study of longer wells when optimizing a cubic array of wells. ExxonMobil has pushed for longer, four-mile wells, with a goal of reducing cost per lateral foot. They have drilled around twenty of the longest wells on the global horizon. But the 20,000-foot Poker Lake well, drilled by Nabor’s X12 rig, is the longest in the Permian, according to Hart Energy.
Directional tools were evaluated to achieve a well design that would result in a wellbore best suited for running casing and implementing well completions. Various innovations were tried, such as rotary steerable tools to minimize doglegs in the production sections of the well. The Hart report described additional innovations. Each Poker Lake well was drilled in less than a month and fracking took about 11 days per well. Based on the usual 5-7 fracs per day would mean 55-77 fracs in a horizontal Poker Lake well that was 4 miles long. This would not be unusual. There have also been rig upgrades and updates in frac plugs and frac cluster placement.
Example 3, Encana cubes in Permian stacked pay:
Encana summed up their early experience in the Permian in a pdf report dated July 2019, Encana in the Permian: Cube Development Facts. In one facility called RAB Davidson, production is gathered from 45 wells. In the RAB Davidson cube, there were 33 wells drilled in 2016-2017 and peak production was 17,000 bopd. Spacing between horizontal wells was 300-400 feet and was chosen to test this, the smallest of well spacings.
An important benefit of cube development is the cycle time: the time between the spudding of the first well and the time of the first production from the well group. Encana argued that their cube cycle time was the lowest of 12 peer companies drilling in the Midland basin. The cycle time and capital efficiency will also depend on optimizing well length, well spacing, and frac interactions between mother and daughter wells. Encana said horizontal well spacings are best if greater than the initial tests of 300-400 feet.
Example 4, ExxonMobil cubes in Permian stacked pay:
Capital efficiency is bolstered by drilling longer wells in a cube development. The simple reason is that fewer above-ground vertical wells are needed in a pad, and these cost savings go straight into improving capital efficiency. More than likely, this is a big reason why ExxonMobil has been pushing four-mile horizontal wells in Poker Lake in the Delaware basin.
Hart Energy reports that longer, more capital efficient wells will be drilled by ExxonMobil in the Midland Basin after their recent acquisition of Pioneer Natural Resources for $60 billion.
In Figure 1, the drilling cube has 1 pad, 7 wellheads, and 27 horizontal wells. If each horizontal well has 40 separate frac operations, the total number of fracs would be 1,080. If each horizontal has 60 separate frac operations, the total number of fracs would be 1,620. The emphasis on “simultaneous” well drilling and completions would be an enormous logistical task, but presumably with large correlative benefits for capital efficiency.
How large is the cube of Figure 1?
Cube length is about 0.5 miles (7 wellheads x 400 ft spacing = 2800 ft = 0.5 mile).
Cube width is the length of horizontal wells (2 miles = 10,500 ft, 4 miles = 21,000 ft).
Cube height is total height of pay benches (3,000 ft in Delaware, 1,000 ft in Midland)
So a Delaware cube would be 0.5 miles x 2-4 miles x 0.6 miles = 0.6 – 1.2 cubic miles.
A Midland cube would be 0.5 miles x 2-4 miles x 0.2 miles = 0.2 – 0.4 cubic miles
More details have been provided by ExxonMobil:
“Our contiguous acreage in the Permian through the Pioneer merger creates greater opportunities to deploy our technologies, delivering operating and capital efficiency as well as significantly increasing production. This includes cube developments and long laterals, among other technologies.
With our cube developments, we drill wells in multiple benches and target all of the connected stacked resource simultaneously. This approach minimizes interference, optimizes long-term recovery, and delivers an increase in value of up to 50% when compared to the typical industry outcomes.
We leveraged our previous learnings from drilling long laterals, as well as our engineering and operational expertise, to spud the first 4-mile lateral in the Delaware Basin in January 2023.”
Takeaways.
According to ExxonMobil’s website, cube development in a formation with stacked benches entails drilling multiple horizontal wells from a single well pad. This allows quicker production from a large area, reduces cost, raises recovery, bolsters capital efficiency, and limits the surface footprint of the operation. Using longer laterals also help to reduce the environmental impact of the facilities as this eliminates a whole row of infrastructure at the surface.
If the length of laterals in an ExxonMobil cube were 2-3 miles, the total number of separate frac operations to complete the cube would be an unfathomable number between 1080 and 1620.
Variations of this cube concept can accommodate a wide spectrum of producing formations and market conditions. In a stacked pay zone, a drilling cube is the well geometry that leads to the ultimate capital efficiency.