Unconventional Thinking

After attending the SPE Conferences on Unconventionals in Calgary and Brisbane at the end of last year, I am blown away by:

  • What the joint ventures in Australia have achieved over the last eight years in making Coal Seam Gas (CSG – another name for CBM) to Liquefied Natural Gas (LNG) a reality.
  • The progress that has been made in Western Canada proving-up the unconventional gas resource base.
Location and reserves of Five Major Unconventional Gas Plays in the Western Canadian Sedimentary Basin. Notes 1,2,3: EUR based on 20% recovery efficiency. Note 3: NEB et al Nov. 2013. (Source: Canadian Association of Petroleum Producers (CAPP): “An Overview of the World LNG Markets and Canada’s Potential for Exports for LNG 2015.” Fig10.)

I am looking forward to seeing the tight and shale gas producers in North America get into head-to-head competition with the Australians by bringing new supplies of LNG into the Pacific market from the proposed LNG projects in the N.W. States and Canada.

On the technical front, I am left pondering whether a probabilistic analysis of the opinion of a large virtual sample of petroleum engineers will provide management and investors with the required confidence to invest in these mega-projects that inherently carry high levels of uncertainty.

Certainly, EnergyNavigator and BetaZi-RPS et al are to be congratulated in providing the actual petroleum engineers and decision analysts with fabulous advanced tools that permit the application of data mining and artificial intelligence techniques to the performance data from analogous projects with multiple advanced decline curve analysis (DCA) methodologies.

Figure 2: Probability Plots of Production Rate and EURs (Source: Screen capture from a Value Navigator analysis of public domain data from tight gas wells in the Montney Field in Western Canada, provided by Janet Tremblay of EnergyNavigatior.)

This will give the project team a much clearer understanding of both risks and the upside by removing much of the bias. It allows us to develop more meaningful type curves for the undeveloped resources.

However, we are still looking at up-side to low-side ratios over seven for the nominal initial decline rates and of about five on EURs with a data set where the range of measured Initial Productivities (IP) on test was only from 1.7 to 2.5 MMscf/d! So clearly, we are still in need of some serious training on the topic of decision making under uncertainty!

Moreover, production decline analysis may not be properly capturing the downside risks. Are we comfortable that Well and Production Engineers recognize what is required to be able to efficiently operate wells for 35 to 55 years? There was an excellent discussion in the October 2015 JPT entitled “Artificial Lift Experts warn of Long-term Production Issues in Horizontal Wells.” Trent Jacobs, a Senior Technical writer for the JPT states that there are “more than 70,000 horizontal wells across North America, and estimated 95% of which are dependent on artificial lift to keep flowing.” ……. “In the dimmest of scenarios, the problems outlined by the [Artificial Lift] experts may force shale producers into the difficult situation of lowering booked reserves as wells are taken off-line because too many lift systems are failing or because they are too expensive to operate.”

Offsetting this on the up-side is the reality that decline curves cannot capture innovative thinking and/or advances in technology. Many cynics failed to anticipate the potential impact of re-fracturing campaigns, despite our experience with the re-fracture of conventional low permeability wells!

20 year decline curve
20-Year Decline Curve for two Tight Gas Wells in Greater Green River Basin showing positive results from Re-frac Treatments in Year 16. Blue line is well 1 and red line is well 2. (Source: Shaefer M., SPE 101026 reproduced by Vincent JPT Mar 2012)

Effective integration of multiple skills and thinking styles is required to enable the Unconventional Gas Asset Team to develop a reasonable balance of optimism and pessimism. This is one of the greatest benefits that I have personally gained from my involvement in the IHRDC E&P Training Programs.

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