Economic Evaluation of Shale Gas Reservoirs

Abstract

Abstract Three 9-square mile areas in the Newark East Field were studied to investigate the economic viability of the Barnett shale gas play. The areas chosen corresponded to the 25th, 50th, and 75th percentiles based on average estimated ultimate recovery per well in the areas. The actual drilling and refrac schedule was used for each area along with actual and forecasted production and today's costs and prices to calculate economics on the 329 wells in the areas. Most of the individual wells are not economic under the assumptions of this study. Of the three areas, only the 75th percentile area was economic when considered as a whole. The results are most sensitive to capital costs and gas prices. Introduction Gas shale plays are the current rage in the U.S. oil and gas industry. At the present time major gas shale plays are unfolding in the Barnett, Woodford, New Albany, and Fayetteville shales and other basins are being targeted as well. The most mature of these plays is the Barnett shale near Fort Worth Texas with more than 6000 wells on production. The most mature field in this play is the Newark East Field located primarily in Wise and Denton counties, Texas. This field was "discovered" in 1981 and rapid drilling began in the late 1990s. There is now enough production history to begin to develop an idea of how commercial these plays can be. As with any emerging resource play, there have been a number of changes in drilling and completion practices over the years. Major advances in technology include drilling horizontal wells, re-fracing existing wells, and using slick water for frac jobs. Rather than attempting to quantify the effects of those technological changes, this study examines the economics of the Barnett play as it was actually developed. Study Methodology The Barnett gas shale in the Newark East Field was studied by subdividing the field into 3-mile x 3-mile blocks. The average estimated ultimate recovery (EUR) for each 3 x 3 block was determined from a proprietary database containing EUR's for approximately 4500 Barnett shale wells. This database was created by using decline curve analysis to estimate remaining reserves for each "event" on each well. "Events" subsequent to initial production are usually assumed to be refracs, but may include significant increases in production from other effects. Figure 1 shows the production rate from an example well along with the decline curve extrapolations. A bubble map of the average EUR for each block which contains more than 20 wells is shown in Figure 2. Figure 3 contains a cumulative frequency plot of EUR for those blocks. It can be seen that the cumulative frequency curve is almost linear, indicating that the average EUR's for the blocks appear to be approximately uniformly distributed. Three blocks were chosen for more detailed study. These blocks correspond roughly to the 25th, 50th, and 75th percentile as shown by the large dots on Figure 3 and the black, red, and blue dots on Figure 2. Each of these study areas contains more than 100 wells. The study areas will be referred to as the "Low", "Medium" and "High" areas in the remainder of this paper. For the purposes of this study the timing of the wells, the choice of horizontal or vertical wells, and the refracing was modeled exactly as it occurred. Actual production was used as long as it was available and the extrapolation of the final "event" was used to project future production. Obviously, these assumptions limit the applicability of the study results to new plays where different technology might be employed from the start. It also does not take into account potential refracs or recompletions or increased density drilling in the future in the three areas. However, in spite of these limitations, it is instructive to look at the economics of these areas based on historical timing and technology.