Credit: Shale drillers have squeezed more oil out of a given well over the past few years by becoming more efficient in their drilling operations. But the industry is still scaling up, and shale executives are now throwing around buzzwords such as “cube development” and “supersizing,” referring to the massive footprint of today’s wellpads.
In the past, shale companies figured out a way to cut costs while expanding production: drilling more wells on a single wellpad. In essence, that lowered the average cost of a shale well, allowing drillers to do more with less. Other techniques were also scaled up, such as using more frac sand, more water, and drilling longer laterals. That allowed shale firms to survive during the downturn, and it has also led to surging production that is breaking new records with each passing week.
But the process continues, and shale companies are using that same logic today to continue to scale up. For instance, as Bloomberg reports, Encana is pursuing a drilling approach called “cube development,” in which the company drills about 20 wells from a single wellpad, extending in every direction, with the aim of extracting oil and gas from the multiple layers of the Permian, rather than each well targeting an individual shale layer.
The term refers to the notion that the driller is accessing the entire three-dimensional “cube” beneath the surface, rather than just the hydrocarbon resources immediately around the individual wells. “[T]he Permian is graduating," Gabriel Daoud, a JPMorgan Chase & Co. analyst told Bloomberg. “Now it’s all about entering manufacturing mode."
More and more shale companies are following this approach, supersizing individual projects to pull more oil and gas out of the ground.
The flip side is that some question the economics of such a massive project, which Encana has likened to a military occupation. The Encana project likely cost around $120 million, JPMorgan analyst Gabriel Daoud said, according to Bloomberg. Associated costs, such as upgrading gathering lines, using more labor, additional equipment call into question whether supersizing really achieves the benefits of economies of scale. But Encana says that because the approach can produce more oil and gas, the per-well costs have declined by a quarter at its supersized operations in Canada’s Montney shale.
Encana is one of the more aggressive companies in this regard, with all of its 2018 wells set to come from these supersized cube-style wellpads. Some Texas shale drillers, as Bloomberg notes, are a bit more cautious. Pioneer Natural Resources and EOG Resources, two notable Texas shale firms, are likely keeping the number of wells on a given wellpad in the single digits for the time being. A spokeswoman for EOG Resources expressed some concern that too many wells could impact overall productivity, according to Bloomberg.
Nevertheless, a similar phenomenon is playing out in the shale gas arena as well. According to the Pittsburg Post-Gazette, the top shale gas drillers in the Marcellus Shale are supersizing their operations. EQT, the largest gas producer in the country, is drilling as many as 30 to 40 gas wells per wellpad, with laterals extending as long as 4 miles in every direction. EQT, like Encana, is also trying to hit multiple shale layers in one go rather than drilling individual wells for a specific section of the shale formation.
In an operation as large as this, spending on a single project can run as high as a quarter of a billion dollars, the Post-Gazette reports.
Some shale companies are taking Encana’s approach at supersized well pads, but drilling the wells in an incremental fashion. The idea is that the company can drill a half dozen shale wells, wait for the market to catch up, and then return to the same supersized wellpad and drill more wells. In the meantime, much of the upfront cost for the wellpad and has already been spent, and the additional wells are comparatively cheap to pull off.
It is not yet 100 percent clear that the trend towards supersizing will be successful, or that dozens of wells per wellpad is preferable to a smaller number. But if supesizing proves to be much more efficient, then the upshot could be a shift towards more consolidation in the industry. Mom-and-pop shale companies could struggle compared to their larger corporate competitors, lacking the financial heft to pull off supersized “cube” development. Time will tell.
This article was originally published on Oilprice.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
