Abstract

An economic evaluation has been performed to determine the expected returns on investment for a drilling program in the Giddings, Austin Chalk Gas Field. Using projected production schedules of selected well types from the encountered reserve distribution, computer based cashflow analyses were performed under six hypothesized future scenarios of varying hydrocarbon pricing, demand, taxation, and inflation. For the six future scenarios studied, the Giddings Gas Field drilling program was found to produce a positive, after tax net present value, using 15% as a discount produce a positive, after tax net present value, using 15% as a discount factor. Furthermore, the returns on investment were higher for an independent than for a major producer. Our results suggest a drilling program initiated in the near future will prove to be an attractive program initiated in the near future will prove to be an attractive economic venture.

Introduction

A drilling program involves an outlay of capital by an operating company which expects to recover these funds and earn a profit on its investment from the stream of income created by the sale of produced hydrocarbons. To estimate the value of this generated income, which will vary in an uncertain future, it is necessary that an economic evaluation be performed prior to embarking on the project to determine its profitability performed prior to embarking on the project to determine its profitability under alternative future economic scenarios.

The objective of this study was to determine the economic returns on investment for a drilling program in the Giddings Gas Field under conditions of future economic uncertainty. As the Giddings Field has been described as an independents' play, a secondary objective of this study was to compare the expected returns on investment for an independent producer (defined in this context as one producing less than 1000 BOPD or gas equivalent) with those of a major producer (defined as a company producing more than 1000 BOPD or its gas equivalent).

The economic evaluation involved the following steps:

  1. Characterization of the Giddings Gas Field reservoirs.

  2. Estimation of well reserves.

  3. Production rate forecast.

  4. Construction of future economic scenarios.

  5. Cashflow analysis.

The Giddings Gas Field was selected for this study because of its recent history of intense drilling activity and because no such study has been reported in the literature. This paper presents a summary of our results together with the methodology used to achieve them.

GEOLOGY

The producing formation of the Giddings Gas Field is the Austin Chalk. Average matrix porosity is about 5 % while the average permeability is less than 0.05 millidarcy. The diagenetic processes in the Chalk of compaction, pressure solution, and cementation produced a brittle rock which was easily pressure solution, and cementation produced a brittle rock which was easily fractured by growth faulting and by the deposition of the Chalk over local structures.

The search for economic production in the Chalk has focused on locating areas where the low matrix permeability is considerably enhanced by these natural fractures. Fractured zones on the Chalk are discontinuous. Wells drilled in numerous large lease blocks have frequently discovered few large reservoirs, while encountering many smaller ones.

Giddings Gas wells can be located to the downdip of the Giddings Oil Field. The occurence of gas downdip from oil wells is an unusual situation which may have been caused by lack of gravity migration of fluids in the Chalk.

This content is only available via PDF.
You can access this article if you purchase or spend a download.