Traditional development of unconventional resources has consisted of completing and stimulating the entire lateral length of a horizontal well shortly after drilling to total depth (TD). In the top five liquids-rich North American producing basins, a majority of unconventional well completions occur from three to seven months after spud. Some wells are recompleted after a period of production to increase recovery. Because of the sharp decline in commodity prices in late 2014, some operators are employing a development strategy of drilling wells but delaying completion, which has created a backlog of drilled, but uncompleted, wells (DUCs). Operators can adopt this strategy if they are required to hold drilling leases, preserve cash, have contractual commitments, or when there is some added benefit to delaying the completion or partially stimulating sections of the lateral at different times. This paper investigates the economic and recovery aspects of delaying investment in unconventional well completion and stimulation.
A methodology is presented, consisting of numerical reservoir simulation and economic evaluation through real options analysis (ROA). First, the study focuses on the recovery aspects of completing and producing from one lateral interval, while leaving another interval uncompleted for a period of time using numerical reservoir simulation with advanced gridding and reservoir modeling capabilities. Next, the study explores the economic value produced by delaying investment evaluated with ROA. To quantify the value of the delaying option, a sensitivity analysis is then performed to demonstrate the effect of the volatility of commodity prices and development costs. Finally, to connect the real options theory with the practical aspects of unconventional resource development, the underlying assumptions about operational capabilities are evaluated.
Results indicate that there is potential for optimizing asset value in unconventional resource development by adopting alternative completion strategies and investment timing. Net-present value (NPV) after 10 years could be increased by stimulating one section of the lateral and subsequently recompleting the well by stimulating the previously uncompleted interval. Timing the recompletion with an increase in commodity prices and considering the magnitude of the increase showed strong correlation with NPV improvement. Production log and fiber-optic analysis indicate that a greater amount of hydrocarbon production (i.e., depletion) occurs in the heel section of a multi-stage, fractured horizontal well (MFHW). The time-phased completion strategy could remediate this problem by isolating production in the lateral at different times, helping to ensure that only the completed lateral interval is producing at a given time.