This paper describes a method to examine the relative merits of locationsfor horizontal wells in a naturally fractured shale gas basin. The methodologyexamines noncontrollable variables (existing reservoir pressure, pay-zonethickness, and success ratios) as well as controllable pressure, pay-zonethickness, and success ratios) as well as controllable variables (gas price anddrilling costs) to arrive at the profitability for a horizontal well project ina candidate area. An analysis of the expected monetary value (EMV) and a cashflow model are used to obtain a distribution of cash flow levels that yields adetermination of whether a project is likely to succeed. Ranges ofprofitability for an unstimulated project is likely to succeed. Ranges ofprofitability for an unstimulated horizontal well are presented graphically. With this approach, the most likely areas for horizontal drilling to beeconomically and technically successful are identified easily and quickly.
The most promising areas for horizontal-well development in a tight, naturally fractured shale reservoir can be identified quickly with a methodthat ranks proposed horizontal-well projects. This method combines the benefitsof risk analysis, in terms of success ratios and EMV calculations, with thepredictive capabilities of a reservoir simulator. EMV analysis lends itself toa determination of whether a project is likely to succeed. EMV analysis can beused alone to compare similar projects quickly in terms of the drillingtechnique used; however, a more realistic project analysis is possible if EMVanalysis is used in conjunction with rate of return (ROR) and paybackdeterminations. The tight, naturally fractured Devonian shales of the Appalachian basin compose the project area for this horizontal-well rankingproject area for this horizontal-well ranking study. The state of West Virginiapreviously was partitioned into three geologic settings, reflecting the typesof Devonian shales present. Fig. 1 shows the primary partitioned present. Fig.1 shows the primary partitioned areas in Geologic Setting 1, an organicallyrich, black shale region (Huron-Rhinestreet formation), the area that is thefocus of this study. Geologic Setting 1 is partitioned into six areas on thebasis of geologic data that establish the natural stress and natural fracturedistribution of these Devonian shales. These partitions were validated with 40years of cumulative gas production data. Table 1 lists the counties included ineach of the six partitions. Reservoir parameters for each partitioned area wereused in a finite-difference, dual-porosity, single-phase gas reservoirsimulator to predict horizontal-well gas production over 10 years. Predictedproduction production over 10 years. Predicted production was then used in acash flow model to determine economic parameters at different gas-pricescenarios. EMV calculations were performed with Devonian shale success ratiosperformed with Devonian shale success ratios compiled by the West Virginia Geological and Economic Survey for the U.S. DOE (see Table 2). The EMV analysiswas completed at each gas-price level for all the areas. Each horizontal-wellproject was then ranked on the basis of its respective EMV value, with thesites showing the highest EMV's considered the best candidate areas forhorizontal-well development. The simulator used in this study can account fordesorbed gas in naturally fractured Devonian shale reservoirs. An input datatable of reservoir pressure vs. adsorbed-gas content is used when theadsorbed-gas option is turned on. This table represents results from thelaboratory measurement of gas content from more than 2,000 Devonian shale coresamples taken from selected wells in West Virginia.
Reservoir properties play an important role in predicting the future gasproduction and, ultimately, the profitability of a venture in a gas reservoir. Reservoir properties, such as pressure and pay-zone thickness, and previoussuccess rates are fixed at the start previous success rates are fixed at thestart of a project and thus can be considered "noncontrollable"variables during the project's life. This study also considers project's life. This study also considers horizontal-well length, drainage area, azimuth, typeof horizontal well (medium radius), and topography as noncontrollablevariables. However, values assigned to gas price and drilling costs can varyfrom start price and drilling costs can vary from start to completion of aproject. Gas price usually covers a range of values during the project's lifebecause annual gas prices fluctuate with gas supply and demand and inflation. Therefore, these values can be considered "controllable." Thus, cashflow levels can be predicted from ranges of gas production predicted fromranges of gas production values obtained from a reservoir simulator. As projectcash flows become known at different gas-price levels, these values are used in EMV calculations as part of the project-ranking method. project-ranking method. Horizontal-well projects are ranked by following the same principles used torank vertical-well projects. The EMV concept is widely accepted as a logicalmethod for ranking projects, based on the expected value (future cash flow) orprofitability of a project.
