Spindletop in Texas, California's Signal Hill and the Drake well in Pennsylvania are storied names in US oil history. But another milestone is at hand in that long historical arc, as a nondescript technical concept comes into play in tight-oil formations. The concept is downspacing.
Like the legendary names above, downspacing in horizontal tight-oil plays will make a significant contribution to rising US crude oil production—and benefit the companies who generate it.
Think of downspacing as an evolutionary milestone. The industry has evolved from well names (Drake, Spindletop, Signal Hill) to fields (Yates, East Texas) to geologic basins (Bakken, Eagle Ford) in the quest for hydrocarbons.
As the industry moves into the basin resource developmental model, the question becomes how can operators harvest the greatest volume of original oil (and gas) in place.
So imagine a three-dimensional cube of oil-saturated, low-permeability rock. Next, create a mental image of the best combination of horizontal laterals to effectively drain that cube. Those laterals can be placed close by at similar depths, or staggered at vertical depths to effectively access trapped hydrocarbons within that three-dimensional cube.
But here is a dilemma: You don't want the laterals spaced so far apart that resource is left stranded. You also don't want laterals so close together that they cannibalize drainage from an adjacent well bore. Both are an inefficient use of capital, equipment and people.
It is also a fractal. The challenge involves both the space between adjacent laterals and the space along individual laterals, as operators nudge frac stages and perforation clusters closer together to get maximum “goody” out of the reservoir. Operators are also experimenting with adjusting where stages are placed, in order to stimulate only the best portions of a reservoir, versus the old model where stages were arbitrarily located at standard arithmetic intervals.
And that leads to another dilemma. Wider spacing generates greater estimated ultimate recoveries (EURs) per well bore. Narrower spacing generates lower individual EURs per well, but greater overall resource recovery.
Horizontal downspacing in tight oil is relatively new, but it builds upon the experience in dry-gas unconventional shale plays. For example, an existing Newfield Exploration Co. model of how it impacts gas recovery illustrates the counterintuitive concept of lower EURs but greater resource recovery. The model shows laterals on 80-acre spacing generating the equivalent of 5.3 billion cubic feet (Bcf) per well in EURs, or a recovery of 21.2 Bcf out of a resource base estimated at 60 Bcf of original gas in place. Downspacing to 40 acres, however, produced EURs of 4.0 Bcf per well, which is a 25% reduction, but ultimately generated 32 Bcf of recoverable gas—as the recovery factor grew from 35% to 50%.
Operators choose the larger EUR approach during the delineation and optimization phases of an unconventional play since investors will credit value to a company's stock based on future potential as the company de-risks acreage.
But operators switch to increased resource capture during the harvest portion of shale development as they seek to become cash-flow-positive. The switch lowers the economic threshold and opens more resource to capture, stretching economic potential into formerly marginal acreage.
Downspacing has been a part of vertical drilling for decades. It has also been a part of tight-gas directional drilling in the Rockies over the last decade where operators successfully exploited multiple stacked, small acreage fluvial sand lenses. What is different now? Operators are aggressively pursuing the concept with horizontal development programs in 2013 in oil shale plays like the Bakken, Eagle Ford and Niobrara shales. The concept offers future opportunities in exploiting stacked formation plays in the Permian and Anadarko basins.
Early results show horizontal downspacing enhances recovery by allowing operators to leverage fracture stimulation in parallel laterals to develop greater complexity in the fractured environment downhole via zipper fracs.
Here are a few numbers to illustrate how horizontal downspacing will have a material impact on US oil production. A mere 1% in recovery factor for EOG Resources Inc.'s 2.6 billion barrels in recoverable resource adds 260 million barrels of oil. Stacked horizontal downspacing doubles Bakken potential from 24 billion barrels of recoverable oil to 45 billion barrels.
It's getting crowded down here.
For more coverage of new plays, see OilandGasInvestor.com.
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