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A Probablistic Approach to Shale Gas Economics
SPE 108053
Shale gas plays are generally characterized by high commercial risk. The economic evaluation process requires a consistent approach in comparing the economics of various plays, defining a range of uncertainties, and providing management with maximum insight into the basis for a Go—No Go decision.
Due to the large number of unknowns, deterministic economic modeling gave low confidence and was viewed as merely a scoping indication of commercial potential. This paper describes a consistent, systematic probabilistic approach employed in the evaluation of a number of shale gas plays, how various software applications were deployed, the vital role of multi-disciplinary participation, iterative modeling efforts and conclusions.
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Copyright 2007, Society of Petroleum Engineers
This paper was prepared for presentation at the 2007 SPE Hydrocarbon Economics and Evaluation Symposium held in Dallas, Texas, U.S.A., 1–3 April 2007.
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Paper Abstract
Unconventional resource plays, and shale gas plays in particular, are generally characterized by lower geologic risk and higher commercial risk. Large, continuous accumulations of tight, often naturally-fractured shale serve as both a hydrocarbon source and a potentially-productive reservoir. The likelihood of commercial production is a primary uncertainty in these plays, resolved in part by drilling pilot (appraisal) wells. The need to understand the range of potential for commercial realization places a heavy burden on the economic evaluation process. This requires maximum insight into the basis for a decision to pursue or not pursue any particular shale gas resource play. Beyond this, a consistent approach to economic evaluation is of critical importance when comparing the economics of various plays. Without consistency, comparison of multiple shale gas plays becomes extremely difficult, if not impossible.
The ability to define and represent key uncertainties and understand their respective impacts on economic feasibility is vital to play entry and subsequent decisions involving continued investment. Issues such as well design (vertical, horizontal, multi-lateral, etc.), well performance (initial production rates, estimated ultimate recovery, etc.), stimulation technologies, commodity price environments, as well as commercial aspects such as acreage availability and cost, project execution timing, and rig count are critical. Furthermore, because there are few well-established commercial plays, analogs are constructed mainly from these data-bearing plays; e.g. Fort Worth Barnett, and applied to emerging or prospective plays. Uncertainty surrounding the technical or commercial fit of a given analog for new basins/plays must be accounted for in the play/project evaluation process.
Pioneer focused on a number of domestic shale plays that differ in many ways, most notably in terms of “the stage of commercial maturation.” Due to the large number of unknowns, deterministic economic modeling gave the team a low confidence in the results and was viewed as merely a scoping indication of commercial potential. It was recognized by the team and by management that deterministic, single-point solutions are unable to provide a reality check for the input assumptions, which typically leads to overly optimistic results. Therefore, it was determined that these models, while good for quick scoping evaluations, would be inappropriate for decision-making in emerging plays. A better solution had to be found.
This paper describes a consistent, systematic process employed in the evaluation of a number of shale gas plays, how various software applications were deployed, the vital role of multi-disciplinary participation, iterative modeling efforts and conclusions. In a general sense, we believe the lessons learned here can be applied either to unconventional or conventional upstream oil and gas projects. |
