In Lea County, New Mexico, shale producers drill an average of 10 wells per 640-acre section.

But last year, Concho Resources, the third-largest producer of oil and gas in the Permian Basin, decided to push the envelope. The company assembled seven drilling rigs owned by six different contractors and five fracturing fleets on a mile-long tract of land to build the “Dominator Project.”

The effort took the better part of a year and, in the end, it delivered 23 wells targeting five individual target horizons in the Wolfcamp Shale formation. The location, in the northern Delaware Basin, was carefully selected for sit-ting atop some of highest-quality geology within one of the highest-producing unconventional plays on the planet.

But when executives revealed the first oil production results in July, new doubts were raised about the success of the experiment. They said the well spacing, which averaged a horizontal distance of 230 ft compared with the area average of 600 ft, was “too tight” and that future projects would execute wider intervals.

Independently developed type curves show that the Dominator wells are now on pace to fall short of initial estimates, maybe by as much as 45%. The news triggered one of the sharpest selloffs ever seen in the shale business, sending Concho’s share price down 22% for a single-day market value loss of close to $4.4 billion.

The sector is now studying the implications that this project will have on the cube developments that are believed to require at least $150–$200 million to execute for the largest such projects. Only the largest operators can afford to take this route and among those are Concho, Encana, Devon Energy, and QEP. Several others, including Callon Petroleum, Pioneer Natural Resources, and Chevron are in transition, according to various reports.

As the trend moves forward, questions are being raised about the business model that the cube represents, and how big these developments can be before diminishing returns kick in.

Analytics and industry consulting firm Enverus, which just this week changed its name from DrillingInfo, is using a new platform it built for analyzing well spacing scenarios to piece together the lessons learned from the Dominator case study. One obvious takeaway for the firm is that constructing 23 wells in a drilling section is probably too many, at least in the oil window of the northern Delaware.

“You now have the upper range,” said Tyler Krolczyk, a petroleum engineer and analyst at Enverus. He noted that Concho’s program mostly involved eight well pads in this area of the Wolfcamp before it jumped to the 23-well Dominator pad. Other operators have averaged just a couple of more wells per pad.

“There is a big question mark in between the 10 and 23 wells,” said Krolczyk, citing specifically a dearth of pads in the area drilled out to 16 wells. “I think it would be interesting to get into that middle ground and see what the production number is.”

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