Unconventional Well Profitability vs. Asset Profitability

Abstract

The reserves growth in unconventional resources over the last three years has taken everyone by surprise and the ramifications are only now being fully realized by the marketplace and government. The role of shale basins in this growth has forever changed the skill expectations of oil industry professionals. This growth, primarily focused in North America today, will almost assuredly spread globally. The economics of unconventional resource plays are quite different from those of conventional plays. Even the business metrics of success are usually ranked differently (Roundtree et al, 2009). This paper examines the overall cost structure of unconventional plays (land, drilling, completion, and well operation) versus the potential return. Prudent application of front end exploration to enter a play under favorable land price conditions, pragmatic well construction and completion practices to control costs, and efficient development drilling programs to optimize the resource recovery factors must all be considered in overall resource play economics. We demonstrate how irrational pursuit of lower development costs can often be detrimental to overall play economics and ultimate resource recovery. Investor and governmental pressure may grow as these stakeholders segregate the operators who excel in achieving a balance of the different factors to sustainably produce better economic returns for their shareholders while extracting the maximum recoverable resource from the reservoirs in question. Stranded reserves will be seen ever more so as a measure of engineering malfeasance and not just sub-optimum economics.

Integration of heat-energy recovery and carbon sequestration

“…This would correspond to an intensity of embodied energy of 169 US$/GJ. Operational costs are determined by experience (e.g., the estimated operational cost is 2000 US$/well/month) (Sedillos et al, 2010).…”