The impact of cluster drilling technology on well productivity and profitability : a case study of the Fayetteville Shale play
Hwang, Allen Thomas
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Horizontal drilling and hydraulic fracturing in shale formations have led to a boom in the U.S. production of natural gas. After the commercial viability of the resource was proven, producers have been focused on innovative completion techniques to increase production and profit. While locations with high resource density and original gas in place can produce sufficient natural gas to make wells economical at relatively low prices, locations with low resource density appear non-viable. The objective of this study is to present an analysis of a new technology--cluster drilling--in the Fayetteville Shale development, highlighting the effect technology may have on well profitability. Inspired by the Fayetteville Shale-Production Outlook performed by the Bureau of Economic Geology (BEG) and funded by the Alfred P. Sloan Foundation, this study uses production history data, separating wells drilled as a cluster from analog non-cluster wells, to investigate changes in costs, production, and profitability. The study's well economics were analyzed with a discounted cash flow model that reflects how a change in a well production profile and drilling and completion costs will affect its profitability. The study uses individual well estimated ultimate recovery (EUR) projected using methods and well economics parameters reported by earlier studies of the play and investor presentations. The analysis produced several important results. First, on a per-well basis, non-cluster wells are, perhaps surprisingly, expected to recover more natural gas than cluster wells. Wells in the non-cluster drilling pattern outperform cluster wells in both productivity and profit. However, the well density of cluster drilling results in a higher recovery factor for a given volume of rock, thus a more thorough extraction of the resource. Second, while a cluster pattern produces more gas from a unit of volume, equating to a higher recovery factor, that production comes at higher cost. The analysis reveals the requisite reduction in drilling and completion costs for cluster wells to match profit levels of non-cluster wells in a given lease. Finally, the analysis suggests an operator may choose to forego monetary efficiency, measured by the present value index (PVI), for higher gas recovery factor provided by cluster drilling.