Some Implications of Unconventional Reservoir Exploitation J F Reader, President Barchan Advisory Services Ltd.

Transcription

1 Some Implications of Unconventional Reservoir Exploitation J F Reader, President Barchan Advisory Services Ltd. DTC Energy Group Colloquium February 28, 2014 February 28,

2 Outline The last decade has transformed the North American oil & gas industry from yesterday s news to poster child for energy independence. This renaissance is now starting to impact continental policy, capital markets, local economies, and is starting to drive a kind of energy optimism Perhaps the biggest single factor causing this is Unconventional Reservoir Exploitation BUT, is it all clear sailing ahead? What is an Unconventional Reservoir? How do we get hydrocarbons out of it? How do we forecast how much we will get from a well or field? What has changed from traditional methods? Leading edge concerns Long term performance challenges Macro-economic implications February 28,

3 What Are Unconventional Reservoirs? First, this presentation is NOT about oil sands!! Today s unconventional (tight) reservoirs are typified by a few key characteristics: Ø The hydrocarbons are stored in extremely small pores, some of which are close to hydrocarbon molecular sizes. Ø A conventional vertical wellbore into a unconventional reservoir will almost always fail to flow at an economic rate, if it flows at all. Ø Long horizontal wells are required to achieve commercialization. Ø Modern, multi-staged, high-pressure fracture stimulations are essential (fracs). Ø Initial decline rates are dramatic and decline rates change over time. Ø Individual wellbore performance is unpredictable, so that statistical methods must be used to estimate reserves. In other words, the seals and barriers of yesterday s reservoirs are becoming today s exploitation opportunities February 28,

4 How Small is Too Small? Size of molecules and pore throats in siliciclastic rocks Dak Philip H. Nelson, 2009, Pore-throat sizes in sandstones, tight sandstones, and shales: AAPG Bulletin, v.93, no.3 (March), pp , Figure 2. AAPG 2009 Reprinted with permission of Philip H. Nelson, and by permission of the AAPG whose permission is required for further use. Human Hair Viruses Bacteria RNA The Storage Frac Sand m 10-9 m The Target 10-7 m 10-5 m 10-3 m February 28,

5 Other Smallness Challenges Connectivity, Tortuosity, Discontinuity From Milner et al, 2010: Imaging Texture and Porosity in Mudstones and Shales: Comparison of Secondary & Ion- Milled BackscaJer SEM Methods CSUG/SPE, , Society of Petroleum Engineers February 28,

6 Basic Fluid Flow Equation (apologies to Darcy) The basic equation for flow in porous media is roughly, Flow = Permeability X (some fluid properties) X change in pressure change in distance This equation was developed for WATER flowing through SAND Permeability is a measured property and varies with Pore size Pore shape Friction And probably a lot of other things Keep Your Eye on This - The Pressure Gradient This equation is just not applicable when the molecules are about the same size as the holes they are in, and the connectivity of one hole to the next is uncertain New reservoir engineering technology is required, but not in practical use yet. February 28,

7 Implications 1. Traditional reservoir engineering tools don t apply very well, or at all, 2. There is no reliable understanding of how things work at these small scales, 3. The industry efforts to forecast reserves are basically falling short of the mark, and certainly don t have the confidence level that we have been used to. February 28,

8 So, How Do We Even Get Any Production? ANSWER: Long Horizontal Wells and Large Multi-Stage Fracture Stimulations Natural Gas From Shale, QuesYons & Answers DOE/NETL UnconvenYonal Gas Resources Program, 2013 February 28,

9 Just What is Really Going On With Those Fractures? Graphic from Schlumberger February 28,

10 Reservoir Engineering and Fractures Thinking back to our flow equation, Fractures have very high, practically infinite permeability They are kind of like miniature pipelines Three stages of flow Flush the 48 hour rate used for promotional purposes Meaningless Linear as fractures deplete, Poorly understood, but not related to the real reservoir No information about the ultimate reserves Can and does persist for years Conventional methods that are used to forecast provide OPTIMISTIC results Radial where conventional reservoir prediction tools have half a chance Provides indications of the accessible reserves The Pressure Gradient has to be sufficient to push the product from the rock to the wellbore Ultimate reserves are much lower than the industry thought, or perhaps still thinks Based on gas dynamics even worse when condensate and oil get involved February 28,

11 Contrasting Conventional versus Unconventional February 28,

12 Transitional Flow In Fractured Media Conventional Prediction Doesn t Work 1,200 1,000 Forecas4ng a Typical Unconven4onal Gas Well (Duvernay Shale, Alberta) 800 Duvernay Well ProducYon BOE/DAY BOE/DAY EsYmated 20 year EURs Forecast 1 Di 75% B=0.6 Forecast 2 (TradiYonal ExponenYal Decline) Qi=775 Di =50% B=0 Forecast 3 Di=110% B= Months February 28,

13 How Many Years to Predictable Flow Regimes? Time to estimate EUR ~12-32 months. ach a "constant b" (straight-line). From: Heckman, T.L., et al (2013): Best Practices for Reserves Estimation in Unconventional Reservoirs Present and Future Considerations, Keynote presentation presented at the 2013 SPE Unconventional Resources Conference, The Woodlands, TX (USA), April February 28,

14 Switching Gears What are the macro implications of these characteristics of the Unconventional Reservoir? 1. The fact that it takes years to establish a predictable reserve recovery? 2. The fact that we have no idea how the well-bore/fracture regime will behave in later life? 3. That these wells are characterized by rapid initial declines? February 28,

15 Possible Reserves Trajectories Simulated Unconven4onal Curve MMCF/DAY Range When PredicYon Becomes More Reliable 1. Life works out and there is a long, low decline reserve life. 2. The reservoir is so Yght and unconnected, that once the fractures are depleted, there is no more to recover. 3. There just is not enough reservoir pressure to overcome the fricyon of the system, and some liquids condensayon just chokes the flow path off MONTHS February 28,

16 If The Reserves We Have Predicted Don t Show Up For Companies Their F&D cost is higher than they think it is Their reserves are over-booked That stable long-life production forecast is not coming Cash flow will not be enough to sustain Their rates of return are low For Investors They are not getting the information to make rational investment decisions If sustainability is their goal (MLP distributions), these assets may not be optimal For Policy Makers Energy independence may be an illusion The true cost of replacing energy used today is higher than we think Tomorrow s energy price will be a lot higher February 28,

17 Short Term Impacts For All Players (700) Haynesville Example Three trends are interesyng; il production (Mar vs. Feb) 1. There were stepped levels of producyvity improvement per well- bore. (600) Haynesville Haynesville Indicated New-well change gas production in natural per gas rig production (Mar vs. Feb) Rig count thousand cubic feet/day rigs million 6,000 cubic feet/day new-well gas production per rig 5, rig count 4, , , As the best technology was implemented, rig acyvity began to drop, but producyvity plateau d, Haynesville suggesyng Oil 0 Natural gas production Gas -91 thousand the barrels/day possibility of million cubic feet/day month over month million cubic feet/day sustainability. month over month , Feb Production Legacy Net Mar , from 2010production change2013 6, MMcf/d new wells change MMcf/d 12, When commodity prices plummeted, so did the rig count, AND so did the basin producyon!! 10,000 8,000 6,000 4,000 2,000 US Energy InformaYon AdministraYon, 0 Drilling ProducYvity Report, February February 28,

18 The Bakken Some Observations 1,000, ,000 Bakken Drilling & Produc4on Trend (North Dakota data only) , Oil Produc4on BBLs/Day 700, , , ,000 Daily Oil ProducYon Number of New Wells Changing Rig UYlizaYon for Sustainability , , ,000 - Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct February 28,

19 Concluding Remarks What we don t know about Unconventional Reservoir ultimate performance probably exceeds what we do know. This is especially so for liquids plays. The cost of sustaining growth, or even plateau rates in individual shale plays is high, and depending on long term performance may be significantly higher than we think. Sustainability is dramatically affected by commodity price (and possibly capital market strength). The ultimate commodity price for sustainability may be cloaked by transient production performance. When spending stops, production declines are high enough to have company, state/ province, national and continental impacts. February 28,