Option Values of Alternative Completion and Production Strategies in Shale Gas Plays Janie M Chermak, University of New Mexico James Crafton, Performance Science Inc., Robert Patrick Rutgers University 30th USAEE/IAEE North American

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Option Values of Alternative Completion and
ProductionStrategies in Shale Gas PlaysJanie
M Chermak, University of New MexicoJames
Crafton, Performance Science Inc.,Robert Patrick
Rutgers University30th USAEE/IAEE North
American ConferenceWashington, DCOctober 12,
2011
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Shale Gas Plays
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These wells are depleting so quickly thatthe
operators are in an expensive gameof catch-up
Deborah Rogers, 11/2009
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Shale Gas Plays

• PRODUCTION
• - 2008 2.02 trillion cubic feet (Tcf)
• - 2009 3.11 Tcf
• RESERVES
• - 860 Tcf, with 410 Tcf from Marcellus
• (EIA AEO 2011)
• - 84 Tcf from Marcellus
• (USGS Aug 2011)

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Shale Gas Plays
Impact of shale gas on the natural gas industry
depends on - actual production meeting
forecasts - ultimate recovery
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Research

• Actual production
• - reservoir characteristics
• - well characteristics
• - capital choices (completion and re-completion)
• - production choices
• Ultimate recovery may depend on
• - all of the above and
• - early management production decisions

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Model

• Develop a theoretical dynamic optimization
  model
• that allows for periodic capital investment over
• the life of the well.
• Based on the necessary conditions we develop
• an econometrically estimable cumulative
• production function

X is a vector or reservoir characteristics and Z
is a vector of completion and production
choices. Included in Z are characteristics of
the completion job, including the fracture
half-length, Fi.
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Model
The fracture sub-production function is also a
function of reservoir characteristics and
completion choices
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Model
We estimate this simultaneous system of equations
using 3SLS and a log-log specification.
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Data

• 120 shale gas wells located in the US
• - 39 horizontal wells
• - 81 vertical wells
• all wells began production since 2007
• have between 30 and 720 days of production data
• production data
• reservoir characteristics
• completion and production choices

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• Well Characteristics
• - permeability thickness
• - Initial Reservoir Pressure
• - Perforated Interval
• Completion Choices
• - Gallons of fracture fluid
• - Pound of proppant
• - Barrels per minute
• - PSIG
• - Stages
• - Micro-emulsion concentration
• - 100 Mesh
• - 2040 Equivalent Mesh
• - Winter Fracture
• - Time between completion start and first
  production
• Completion Outcome
• - Fracture Half-length final and early
• - Fracture Conductivity
• Cumulative Production

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Results

• The fracture resulting from the completion job
  is
• significant and positive for early period
  production
• Fracture conductivity significant and positive
• for vertical wells
• Micro-emulsion concentration has a positive
• and significant impact
• The completion job is significant. For
  horizontal
• wells it is how the job is performed
• (rate and pressure) for vertical wells it is
  the
• volumes and how the job is performed.

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Results

• Stages are significant and positive for
  horizontal wells,
• but not for vertical wells
• Delay between beginning completion and
• production significant and negative
• Ratio is significant and negative
• Winter completion job negatively impacts
  vertical
• well production
• Decline (all else equal) different. Early
  period
• decline 7 larger for horizontal wells

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Conclusions

• Shale Gas Plays impacting the US natural gas
  industry
• May not be as well understood as we first
  believed
• Initial choices may impact well potential
• Initial choices may impact ultimate recoverable
  gas
• Preliminary results suggest vertical and
  horizontal well
• productivity are impacted by reservoir
  characteristics,
• completion and production choices, but not
  necessarily
• in the same manner.