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Unconventional Yearbook 2018

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102 | January 2018 | 2018 UNCONVENTIONAL YEARBOOK | PRODUCTION FORECAST Staying in Appalachia, the Utica Shale is com- posed of organic-rich, black shale interbedded with limestone during the Ordovician period. It generally contains 25% carbonate and 10% to 51% clays, with up to 70% clay in parts of Ohio. This increased clay volume decreases the ability of prop- pant and induced fractures to effectively propa- gate, decreasing connectivity and well production. The Point Pleasant Formation underlies the Utica and comprises interbedded dark shales, siltstones and limestones. It is organic-rich and occurs as a transition zone between the argillaceous (clay-rich) Utica above and the calcareous (carbonate-rich) Lexington/Trenton formations below. Oil and gas operators have increased lateral lengths in the play, seeking to understand optimal completion designs. Eclipse Resources recently reported the successful completion of a "super-lateral" measur- ing 19,300 ft of "completable" lateral well length in the Utica, with expected production in the fi rst quarter of 2018. The geographic extent of these larger well completions may be restricted to more carbonate-rich, basal sections of the Utica and the Point Pleasant. Stratas will be monitoring these wells and neighbors to evaluate the repeatability of this approach. Non-Appalachia dry gas is the third leg on the chair. Within this category, the Haynesville stands out. The Haynesville Shale is a Late Jurassic, car- bonate- and organic-rich mudstone, which is overpressured due to rapid deposition and hydro- carbon generation during and after the Creta- ceous period. This overpressured reservoir regime is a key factor in its higher porosity, permeability and free gas measures. However, these same fac- tors also cause production declines of about 80% in the fi rst year. Haynesville dry gas production is attributed to high thermal maturity and reser- voir temperatures. Additionally, the Haynesville contains signifi cant silica content, such as quartz and feldspars, which leads to improved fracture propagation during hydraulic fracturing. Recent progress with longer laterals and new completion designs has led to strong improvements in well level economics. The key question for 2018 and 2019 centers on how much running room the play has for these bigger wells. Stratas views the Haynesville as the ideal asset to assume the swing producer role for Lower 48 natural gas. Finally, the GoM is the fourth leg on the chair. Historically, the GoM was a major contributor to domestic gas volumes. However, that is no longer the case in the shale era. Instead, gas production from the GoM is mostly sourced from existing wells that are already in decline. Growth will be harder to come by in 2018. While rig counts and activity are projected to remain robust, the high number of "young" wells added in 2017 translates to a steeper base decline in 2018. A steeper base decline makes it more diffi cult to grow production as a greater share of "new source" production, or production from wells added in the current year, replenishes production declines in the base wells. Base wells are wells that began their pro- ductive life prior to the current year. Forecasting growth Well spuds remain the most critical independent variable to forecasting growth in oil and gas pro- duction. In recent years, much has been made about effi ciencies in drilling and completions. Truth be said, it is far easier to lay claim to consistently improving cycle times when working with the best crews and the best equipment. Unfortunately, not all crews nor all equipment can be best at all times. As increasing numbers of crews were called back and assigned to second-tier equipment, cycle times showed some slippage. Stratas does not anticipate large-scale degradation in cycle times, however; the pace of improvements witnessed in recent years is not expected to continue. Annual average production from Lower 48 unconventional sources is PROJECTED TO GROW BY 18% VERSUS 2017, AVERAGING 16.6 MMBOE PER DAY . Accelerating growth in the Permian is the driving force behind this rapid growth.

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