Horizontal drilling in the U.S. has increased nearly 50% since 2002. One reason: advances made in horizontal-drilling and fracture-stimulation technologies have allowed some E&P companies to realize higher returns, lower finding and development costs, and prolonged production in tight-sand and shale plays, according to Tom Gardner, director of E&P research for Simmons & Co. International.

While horizontal wells can cost twice as much as vertical wells, they may generate three times the reserve recovery in unconventional resource plays, he reports.

Despite an expensive learning curve, lack of reservoir information and risk of failure, economic returns can be realized via highly predictable production. Additionally, accelerated resource exploitation and improved development efficiencies can return higher net present value, he says.

No one debates the fact that horizontal drilling costs more. However, the cost has declined from three times that of vertical wells in early use to as low as 1.5 times today-and is likely to continue to decline-he adds. Horizontal rig use has increased 272% from 2003 to 2006.

Horizontal economics have been affected by higher commodity prices, improved drilling technology, industry cost inflation, and fracture-mapping technology using micro-seismic events recorded from nearby wellbores during stimulations.

Companies with large-scale horizontal-drilling programs will improve their economics to survive natural gas prices below $6.50, he adds.

The main challenge during horizontal drilling is to fracture the reservoir to drain the entire formation. However, many sandstone, shale, or clay reservoirs would rather bend than fracture. If unresponsive, much of the horizontal-well advantage may be lost, he says.

The best horizontal-drilling plays have low permeability, thick reservoirs that can be drained top to bottom by one well, naturally or easily fractured rock, and relatively unfaulted formations, such as the Fort Worth Barnett, Fayetteville and Woodford shales.

Less-desirable reservoirs include those with high permeability, thinly laminated reservoirs with vertical flow restrictions of less than 10 times the horizontal flow restriction, rock that does not fracture or stay open after fracturing, and faulted formations with large displacements between fault blocks, such as the Piceance Basin and the Pinedale Anticline in the Green River Basin.