Reserve forecast analysis for unconventional Wolfcamp, Delaware Basin, Loving County
by Mohammad Izadi, Foad Haeri, Louisiana State University
Oil and gas production has been on the rise in the Wolfcamp formation of the Permian Basin in recent years, attributable to efficient horizontal drilling and a low cost per barrel, particularly in the Delaware Basin. However, reserve forecast and replacement is an ongoing challenge for oil and gas operators. A comprehensive understanding of reserve distribution over leases is crucial for operators to select the best candidates for future investments.
An analysis of lease ranking was performed by estimating reserves using stretched exponential production decline (SEPD) method in the Wolfcamp formation in Loving County, Texas. In this process, a database with information on 228 leases comprised of 390 horizontal wells was constructed as of the first quarter of 2017. Information including the acreage, reserve, average lateral length, and production rate of all active operators in the Wolfcamp of Loving County are summarized here.
The leases are categorized into groups based upon the number of completed wells and ranked according to the estimated ultimate recovery (EUR) and cumulative production. For each group, uncertainty analysis by normalized probability distribution function is also represented. This analysis suggests that there should be at least 90% probability that EUR of single-well leases will equal or exceed about 164 Mstb and at least 10% probability that it will equal or exceed about 783 Mstb. Also, there should be at least 90% probability that EUR of five-plus-well leases will equal or exceed about 1,728 Mstb and at least 10% probability that it will equal or exceed about 75,058 Mstb.
This analysis could provide a guidance to prospective oil and gas investors for asset allocation strategies to maximize core competencies regarding Wolfcamp formation activities in Loving County.
Current industry techniques for reserve forecasting in unconventional wells typically are Decline Curve Analysis (DCA or Arps) as the most often used method, Rate Transient Analysis (RTA), and reservoir simulation as the mechanistic method. What makes DCA an advantageous forecasting method is the fact that it only requires the readily available data and eventually provides more reasonable results compared to other methods particularly with discounted cash flow (DCF) analysis.
The financial health of any oil and gas operator is heavily dependent on the amount of reserve that acts as the lifeblood of the company. A good understanding of reserve distribution over leases is very beneficial for operators to select the best candidate for future investment. For instance, in 2016 the price paid per acre of Wolfcamp reservoir in Permian Basin reported to be ranged from $7,000 to $58,000. Therefore, identifying economic core areas and lease ranking based on the reserve estimate could be crucial.
Delaware Basin
The Permian Basin, covers an areas of approximately 75,000 square miles. The Basin is comprised of several other basins including the Midland, the Delaware, and the Central Basin.
The Delaware Basin contains sediments from the Pennsylvanian, Wolfcampian, Leonardian, and early Guadalupian times. The eastern part of Delaware basin is subdivided into several formations and contains approximately 25,000 ft of laminated siltstone and sandstone, and carbonate deposits. The Leonardian encompasses upper and lower Avalon shale as well as the 1st, 2nd, and 3rd Bone Spring formations. The Wolfcampian, however, consists of only Wolfcamp formation. The Wolfcamp shale is divided into four stratigraphic units based on petrophysical log and landing zones of horizontal wells. Wolfcamp A is the topmost unit that is followed by the underlying Wolfcamp B, C, and D units respectively. The Wolfcamp shale is deposited as shallow water carbonates, inter-bedded fine-grain organic-rich siliciclastic mud with organic-poor clay-rich mud. The smallest county in the Permian Basin by area (677 sq. mile) is Loving County, located in West Texas bordering Eddy County in New Mexico from the north and Reeves County from the west. As of February 2017, there were 1,029 producing oil and gas wells in the County with monthly production of 2,688 Mbbl oil and 8,494 MMCF reported in April 2017.
Loving County operators review
Since 2010, the Wolfcamp formation in the Permian Basin has been attractive to many oil and gas operators for its great reserve potential and low breakeven oil price. There are 13 active oil and gas operators regarding Wolfcamp reservoir in Loving County (Q1 2017). Out of 228 leases in the County, Anadarko Petroleum and Shell operate about 31.6% and 27.6% of the leases, respectively. Because the Wolfcamp is under heavy development, the statistics presented are a snapshot of activities at the time of this writing.
Anadarko Petroleum Corp. holds close to 235,000 net acres in the Delaware Basin with more than three billion barrels of oil equivalent (BOE) net resources in Wolfcamp A. The company's average sale volume for Q1 2017 was 54,000 BOE per day. The company has 15 rigs in the Delaware basin and, on average, drilled a lateral length of 7,100 ft.
As of March 2017, Apache Corp. held 392,000 net acres in the Delaware Basin and produced 19,000 BOE/day, of which 57% was oil. The company discovered the Alpine High with 4,000 to 5,000 ft of stacked pay in up to five distinct formations, including the Bone Spring, the Wolfcamp, the Pennsylvanian, the Barnet, and the Woodford in southern portion of the basin. More than 3,000 drilling locations have been identified in Alpine High.
BHP Billiton established 78,000 net acres in the Permian and the company is currently producing 30,000 BOE/day. The company expects to add 850 additional gross wells in the basin. In one of the Wolfcamp wells, the initial average production rate was reported to be 1,450 BOE/day with one-year cumulative production of 250,000 BOE and expected production over average well life of 900,000 BOE.
The total production in Q1 2017 averaged about 54,000 BOE/day with 73% liquid for Devon Energy Corp. The company also maintained the low-cost structure in Delaware Basin with the least operating expense (LOE) total of $39 million. Devon holds over 500 drilling locations in the Wolfcamp. One Wolfcamp A well with a 9,000 ft lateral achieved a 30-day production rate of 3,000 BOE/day with 80% oil.
As of the first quarter of 2017, EOG Resources had 346,000 net acres in the Wolfcamp with total drilling location at 2,660 and a resource potential of 2,900 million BOE. On average, the company had 30 drilling rigs operating in 2017 with an average lateral length of 7,200 and spacing of 660 ft.
Matador Resources Co. holds 178,600 gross acres in Delaware Basin and close to 13,500 gross acres in the Wolfcamp in Loving County. In the Delaware Basin, the company has eight operating rigs and 4,234 gross drilling locations, and an average daily total production of 24,535 BOE/day in Q1 2017. For Wolfcamp A and B, the company currently uses 3,000 lb. of sand/ft and 40 barrels of water/ft for the 210 ft lateral length with 35 ft cluster size.
As of Q1 2017, Occidental Petroleum Corp. holds around 10,000 net acres in the Delaware Basin with about 143 Wolfcamp wells with average lateral length between 5,950 ft to 7,100 ft. The unconventional production in the Permian is between 140,000 to 150,000 BOE/day. In the Greater Sand Dunes Area, Occidental reported a horizontal well drilled in Wolfcamp A with a lateral length of 4,500 ft and peak 30-day production of 1,221 BOE/day with 78% oil. Another horizontal well was drilled in Wolfcamp D with a lateral length of 4,376 ft and peak 30-day production of 1,417 BOE/day with 47% oil.
WPX Energy has 135,000 net acres in Delaware Basin. The 30-day production in one of its wells averaged about 1,538 BOE/day. The company also holds 6,400 gross drilling locations.
Finally, Silver Hill Energy Partners, a privately held operator, holds over 42,000 net acres in Loving and Winkler Counties in the Delaware Basin.
Reserve estimation technique
The purpose of this study was to construct a database for the Wolfcamp formation in Loving County, Texas that includes 228 leases holding 390 wells. The well information, such as cumulative production, well head locations, lease operators, etc. were compiled from the public sources. Note that, the working interests (if any) are neglected for all the leases for simplicity, meaning that only one operator is considered for each lease.
The history of the most productive wells by cumulative production of each operator is plotted in Figure 1. The longest production history is attributed to a well operated by Royal Dutch Shell beginning in October 2010 with a peak of 24,560 BOE/month followed by a sharp decline and a steady production of 3,891 BOE/month on average. The highest monthly cumulative production was reached by a well operated by Matador Resources. The well was drilled to the total measured depth of 15,939 ft with the lateral length of 5,189 ft. Production started in January 2014 with a minor spike followed by a steady decline before March 2016 when it was recompleted to reach a record production of 148,720 BOE in May 2016.
The stretched exponential production decline (SEPD) method is used to determine the estimated ultimate recovery (EUR) in the study. This model, along with the data-intensive discovery, help with forecasting of a controlled production for a single unconventional shale-well based on the data collected by processing of parameters for a large number of wells. This method is a modified version of traditional Arps method and, due to its bounded nature, is more applicable for unconventional reservoirs.
Reserve forecast results
Since the number of wells in each lease is variant, the leases are categorized into four groups: single-well, two-well, three-four-well, and five-plus-well (five and more than five wells) leases. The monthly production of each lease is reported as barrels of oil equivalent (6,000 ft3 of gas=1 BOE) to be more representative for economic evaluation. The decline curve method is applied to all monthly production data regardless of shut-in time or re-fracturing intervals to provide an unbiased analysis. A production rate of 5 BOE/day is considered as the economic limit of each lease in this study.
The EUR values of leases are collected for each group and utilized to rank the leases. By referring to the location of each lease in the County, the maps describe the lease ranking for each group based on EUR and cumulative production values to discover what part of the County holds more reserve. Moreover, the EUR values population is assumed to be normal in this study and the normal distribution for the leases of each group based on 5,000 ft lateral is provided. The pie charts show the operators distribution for leases of each group.
There are 152 single-well leases in Loving County (Figure 2). The highest number of leases are held by Anadarko and Royal Dutch Shell with 36% and 24% respectively. As of Q1 2017, the maximum cumulative production is 1,384 MBOE and the minimum is 24 MBOE. The highest EUR (2,059 Mstb) and the lowest (59 Mstb) both belong to leases operated by Anadarko. There should be at least 90% probability that EUR of single-well leases will equal or exceed about 164 Mstb and at least 10% probability that it will equal or exceed about 783 Mstb.
The similar analysis is applied for two-well leases to estimate the reserve (Figure 3). There exist 41 two-well leases in the County. The highest number of leases are held by Royal Dutch Shell and Anadarko with 32% and 22% respectively. As of Q1 2017, the maximum cumulative production is 2,268 MBOE and the minimum is 176 MBOE. The highest EUR (5,775 Mstb) and the lowest (309 Mstb) both belong to leases operated by Anadarko. There should be at least 90% probability that EUR of two-well leases will equal or exceed about 571 Mstb and at least 10% probability that it will equal or exceed about 3,888 Mstb.
There are 24 three-four-well leases in the County (Figure 4). The highest number of leases are held by Royal Dutch Shell and Anadarko with 29% and 25% respectively. As of Q1 2017, the maximum cumulative production is 5,584 MBOE and the minimum is 780 MBOE. The highest EUR (10,484 Mstb) and the lowest (1,523 Mstb) that belong to leases operated by Matador and WPX, respectively. There should be at least 90% probability that EUR of three-four-well leases will equal or exceed about 1,611 Mstb and at least 10% probability that it will equal or exceed about 10,345 Mstb.
In the five-plus-well group, there are 11 leases with more than five wells being hold by three operators: Anadarko, Royal Dutch Shell, and Apache with four, two, and five leases, respectively. Figure 5 shows the distribution of cumulative production for the five-plus-well leases as of Q1 2017 and their corresponding EUR values. The highest EUR (88,183 Mstb) belongs to a lease with 10 wells operated by Apache and the lowest (1,679 Mstb) is for a lease operated by Royal Dutch Shell with nine wells. There should be at least 90% probability that EUR of five-plus-well leases will equal or exceed about 1,728 Mstb and at least 10% probability that it will equal or exceed about 75,058 Mstb.
Acknowledgement
IHS Markit's IHS Harmony was used in this study to perform decline curve analysis on the data obtained from the Texas Railroad Commission (RRC) website. A special thanks to Mr. Luke Driskell from the department of geography and anthropology at Louisiana State University for the GIS technical support.
About the authors
Mohammad Izadi is a PhD candidate in the Craft and Hawkins Department of Petroleum Engineering at Louisiana State University. Izadi's research interests include gas injection and foam EOR, multistage-fractured horizontal well performance, and reservoir simulation. Izadi is also interested in oil property evaluation especially shale leases located in Eagle Ford, and Permian Basin. He holds BSc and MSc degrees both in petroleum engineering.
Foad Haeri is a PhD candidate in petroleum engineering at Louisiana State University. He has been involved in consulting and research in the areas of drilling and well completions for the past eight years. He is currently conducting research in enhanced oil recovery methods. He received a master's degree from the University of Louisiana at Lafayette and a bachelor's degree from Petroleum University of Technology. He is a member of SPE, AADE and the former president of SPWLA student chapter at Louisiana State University.
