Deloitte: Optimizing shale well designs could boost Eagle Ford, Permian economics

Deloitte’s new research suggests that if Eagle Ford and Permian basin shale operators were to fully optimize their well designs, they could generate respective capital efficiency gains of 19% and 23%. This could represent a $24 billion capital expenditure saving opportunity for US shale operators.

In the report, “Deciphering the performance puzzle in shales: Moving the shale revolution forward,” Deloitte did a meta-analysis of 80,000 wells in the Permian and Eagle Ford. The analysis reveals as much as 67% of completions in the two regions were either over or under-engineered.

“When it comes to efficiency gains, the industry seems presently divided on the outlook for shale wells. Some say gains have peaked, but Deloitte’s deepest foray into well-level data analytics revealed actionable insights which can help improve industry performance at a time when both investor sentiment and commodity prices are low,” said John England, partner, oil, gas and chemicals, Deloitte & Touche LLP.

“The findings clearly show that a one-size-fits-all approach to well design and completions is wasteful, and that it’s time for the industry to choose the right well design, not the biggest, to maximize efficiencies and profitability,” John said.

Key findings

• Rock quality is important but not necessarily the main performance differentiator. According to Deloitte’s analysis of all drilled wells in the Eagle Ford and Permian, the ranking of acreage (e.g., Tier 1, Tier 2, Tier 3) does not influence well performance to the extent previously assumed. More than 40% of wells drilled outside the core of the western Delaware area reported initial 180-day normalized productivity of more than 1,000 boe/d. In the Eagle Ford, a comparable number of high-performing wells exist across acreage tiers.
• "Bigger is also not always better." The statistical analysis further notes wells drilled over the last 2-3 years, with complex and intense completion designs (i.e., longer laterals, more proppants, etc.) actually led to diminished productivity, explaining some of the concerns from investors and financial markets. During this period, more than 3,000 wells that were completed with massive volumes of proppant (in excess of 1,800 lb/ft) yielded productivity below 750 boe/d per 10,000 ft of perforated interval. Despite an increase in completion intensity of more than 40%, about half of US horizontal wells had the normalized 180-day productivity of below 750 boe/d in the past 4 years.
• Optimizing well designs can boost capital efficiency. Deloitte found that 67% of wells in the Permian have been under or over-engineered. A more balanced formation-and-engineering equation could improve the capital efficiency of Permian operators by 23%. Similarly, 60% of Eagle Ford wells have been under or over-engineered. An optimal completion design strategy could increase capital efficiency of Eagle Ford operators by 19%.
• Improving well designs has the potential for US shale drillers to reduce capital requirements by $24 billion. If achieved, exploration and production companies could achieve economic targets in a broader range of price scenarios, and thereby revive investor interest, per the analysis.
• Myriad solutions to consider. To succeed, shale companies can utilize more sophisticated data analytics and balance experimentation and standardization. Technology is king, and knowing the reservoir is critical. Therefore, E&Ps should consider investing in advanced technologies such as microseismic monitoring, fluid tracking, and tracer analytics, among others, to understand how and why the reservoir is behaving in a certain fashion and then augment the development approach.

Sustaining efficiency gains

Optimizing well designs is an important priority, but the industry shouldn’t stop there, Deloitte notes.

To make truly sustainable improvements and build resiliency against future price cycles, operators should work with all stakeholders in the oil and gas ecosystem. For example, E&Ps should co-share the productivity benefits with oil field service companies, and design contractual arrangements with infrastructure providers.

Importantly, E&Ps should also win back investors’ trust through more consistent transparency and reporting details of performance. Companies should standardize how they report well results and look to third parties to help. Large institutional investors, energy agencies, and shale industry associations along with data aggregators could play a big role in standardizing performance benchmarks for the shale industry and its investors.

“Even though we’re over 10 years into the shale era, the industry is actually in the early stages of understanding. As with any new resource, the early phase of growth is also the initial phase of evolution and experimentation,” said Scott Sanderson, principal, Deloitte LLP’s oil and gas strategy and operations practice. “Now we are more aware of the challenges facing the viability of shales, and ‘brute force’ is not necessarily the answer. E&Ps should use analytic insights like this to course-correct both operational tasks and commercial arrangements to bring sustainable benefits to shareholders and the extended oil and gas ecosystem.”