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Unconventional Yearbook 2018

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Page 56 of 107 | January 2018 | 55 DOWNSPACING | 2018 UNCONVENTIONAL YEARBOOK I t was 1931 and Virgil Cottingham needed a big- ger stick. He was weary of being ignored. The huge East Texas Oil Field had emerged quickly and chaotically. Cottingham was chief petroleum engineer for the Texas Railroad Com- mission, which has historically regulated more oil and gas than railroads. He was a keeper of the rules, and East Texas was now a lawless land of crude oil thieves and skimmer refineries. In places like Kilgore, it seemed every available city lot was shadowed by a new drilling rig. Even then, opera- tors knew that drilling a well too close to a neigh- bor could damage a conventional reservoir. Two wells—or three or four—also wouldn't extract any more hydrocarbons than a single well. East Texas overproduction was causing U.S. oil prices to crash by 80%. Locally, the race would go to the swift- est, or the best scoff-law, and every pharmacist and farm boy with a lease and a rig wanted to get in. Cottingham and others convinced Texas Governor Ross Sterling to order in the big guns–the National Guard. The Texas Railroad Commission, and the Army, finally enforced the field rules and estab- lished order, at least for a while. Today's unconventional reservoirs could not be more different from the Woodbine sandstone of the East Texas Oil Field. Tight shales, horizon- tal wells and hydraulic fracturing have reinvented almost every aspect of hydrocarbon extraction. Kicking off multiple horizontals from a superpad makes sense, especially as a way to push down costs and speed up operations. The question for operators now is how to fine-tune the spacing—both horizontally and vertically—to avoid interference and to maximize production and well economics. "From a Wall Street perspective, it is not about identifying the resource. It is about converting that into cash flow in a timely manner," said Subash Chandra, managing director and senior equity ana- lyst for Guggenheim Securities LLC. "We're really not sure what the optimal formula is. We get that it is NPV [net present value] per section, but does it mean we tolerate infill wells that are 30% worse than the parent well? Does it mean that average well productivity has peaked?" Speaking at Hart Energy's DUG Midcon Con- ference last September, Chandra noted that com- panies with acquisitions debt are facing pressure from their financiers. An acquisition package might have been "financed based on a location count premised on horizontal and lateral spacing between wells," Chandra said. "Now prove it. Not only prove it, but get it into development in a reasonable amount of time." This is the fundamental goal of increased den- sity and superpad drilling. "It is not good enough to show a pyramid of 14 zones and say, 'Give us credit,'" Chandra said. "That was so 2016. 2018 is 'Get it, convert it and show us these locations actually exist.'" Aggressive operators are already successfully meeting that challenge. Encana Oil and Gas calls its tightly spaced 3-D development model "the cube." The Calgary and Shifting Gears with Well Spacing Operators strive to optimize well spacing and maximize well economics. By B. Robert Partain, Contributing Editor

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