A mystery story unfolding, with twists and turns
Ohio's Utica shale is a mystery story that will be unfolding for some time to come. And as producing wells are coming online at an increasing rate, much is being learned and development strategies are changing.
The earth does not give up its secrets easily
To be sure, these are a highly complex operations. The earth does not give up its secrets easily. From well location and horizontal well path, to drilling, stimulation, completion, and production methods, there is an enormous number of factors that impact production and EUR (estimated ultimate recovery).
A new strategy
In Gulfport Energy's Q1 2014 earnings release they stated that in order to achieve maximum long term
results (higher ultimate recovery
), they will reduce production rates in the short term. Attempt to drain the subsurface of its hydrocarbons too quickly and your production decline curve may accelerate to the point that you are sacrificing long term total recovery. The company also mentioned that they now have adequate production data to "benchmark" how to produce wells for maximum long-term results. I suggest that current strategies will continue to evolve though establishing a benchmark sounds like a good start.
Variability illustrated - >100% production differences from wells on the same pad
The issue of variable and hard-to-predict
production results is perfectly illustrated by looking at the often enormous differences in production between wells on the same pad. These wells are typically no more than about 40 meters from each other yet production numbers can vary to the extreme.
Click on the links below to see the wells on a map, with wells locations click-able to see production numbers. All wells have at least 72 days of production. Numbers come from the Ohio DNR Q4 2013 report.
Boy Scout wells
: Production varied from 93 to 326 barrels of oil/day
: Production varied from 19 to 108 barrels of oil/day
: Production varied from 51 to 101 barrels of oil/day
: Production varied from 78 to 203 barrels of oil/day
With such large differences, from 100% (minimum) to about 500% we can say with confidence that this is not an exact science and that there is much to learn. I predict that some variability of even 100% will continue to be common as more and more is learned about how to maximize production for these wells.
A scientific approach
Gulfport made a number of additional references to a more scientific approach to completing their drilled-well inventory. More and more operators are learning that higher production and return on investment in shale plays requires a more scientific approach. This is NOT a simple mining operation as many believe. Wells drilled adjacent to each other can have vastly different production rates based on many of the factors mentioned above. Those companies that look for data and science to drive continuous improvement, over taking a pure mining approach, should benefit long term.
Long term strategy and short term pain = long term gain
It is smart that Gulfport is rethinking their strategy and looking to maximize total recovery over the life of a well. Time will tell if their new methods and more scientific and measured approach yields improved results. With current well spacing they look to put over 1,000 additional wells into production in the years to come, over the 50 wells brought online to date. And while wall street punished the company for revising its numbers downward, the company's strategy adjustment should benefit the company long term. Downward revisions are painful, and I expect that as more and more production data becomes available and data for predicting future production becomes more abundant, there won't be such wide swings in company estimates.
Note: Full disclosure, I own a number of Gulfport Energy shares at the time of this writing.