With reference to Graeme posts Shale Oil Reserves Questioned Too
I have access to SPE and read the paper. This guy has a really impressive resume but I have to say this presentation (it was a presentation so wasn’t peer reviewed) has a number of erroneous assumptions and I can only write it up to the fact he works for the State rather than oil companies who have the actual information, he is hence forced to guess. My quotes will come from the actual SPE paper.
Addressing this, the lease EUR is simply divided by the well count. Most multiple well leases were
excluded from the normalizing work.
Ok, mistake number one. In any given well pad it is not that uncommon to have a failed well. It might have to do with a bad completion or casing collapse or any number of issues. You need to look at the production statistics on a successful well by well basis. He apparently doesn’t have access to all this data .
Finally, some leases have production that starts slow and increases or is initially erratic as early production problems are solved. Since inclusion of these leases would distort the results, all these were excluded from the normalizing work
He must be kidding. Anyone who has worked in the industry dealing with shale gas/liquids production has seen this. The type curves are an average of everything. There are many examples of erratic wells that eventually have settled off to being close to the type curve in their later life. The EUR from the IP will within a statistical frame to be in the ballpark. There are as many cases of wells that are erratic that have higher EUR than normal versus the ones that are lower. This exclusion alters the view significantly.
Most papers, articles, and company reports fail to explain or define how natural gas is converted to barrels-of-oil-equivalent. The traditional 6 MCF/BBL conversion on the basis of BTU might have been used, but the divergence in oil and gas prices no longer make this a meaningful approach.
OK, Government employee who knows nothing about the SEC requirements for reserve reporting. All gas must be reported under the 6 MCF per Boe standard. There is no option unless as a publically traded company you want to have your share trading halted and the SEC putting a large size investigative camera up your backside repeatedly until you yell UNCLE (not referring to the sixties TV series us old guys remember). The conversion is set so it is comparative across all companies/countries/jurisdictions etc. What a maroon.
Sorry but even given this guys background I have to say this is an absolute BS study, he links wells of all kinds which could be anything from a 100 m lateral with 1 frac to a 1000m lateral with 7 fracs and all in between as being equivalent under his statistical analysis. They aren’t and that fact makes most of what he is suggesting invalid.
And one of the most naive things I have ever seen (and that amoungst people who aren’t engineers) is the plot where he compares amount of sand utilized in a well versus EUR. This guy clearly hasn’t worked in this particular aspect of the industry or he is playing games. First of all the amount of sand used is dependant on how many fracs are performed in a given well. If I am doing a bunch of low weight fracs it will look the same as one very large single frac in this analysis. Notwithstanding the fact that many of the current wells don’t use sand at all, but rather silicon beads because they have greater structural strength. The amount of sand used in a frac (or sand replacement for that matter) would only have a relationship to a single frac in a well, not multiple fracs. This is a pretty obvious point.
As a proxy for horizontal length, I substituted the length of perforated interval from the public records for 257 of the wells in the study group and correlated it to the EUR forecast.
What he is missing is that the amount of perforated interval isn’t equivalent to the amount of actual formation in contact with the well bore. As an example I have seen 1 km wells with the same amount of perforated interval as 500 m wells, the reason being you only need to perforate enough to get your frac away, you do not perforate the entirety of the wellbore. This is a very poor application of statistics.
And then he shows a plot that uses 89 wells and says it is unusual that the plot doesn’t show any small wells and is not log normal. It has to do with sampling size. Anybody who has spent anytime in this industry knows that as time progresses your information improves, the Eagleford has a history of no more than a few years. The gaps merely demonstrate there is more to be found simply because the very nature of naturally occurring things such as oil and gas reserves is to eventually fit a log normal distribution. That is what the concept of creaming curves is based on. Production from Eagleford is way too early to apply a creaming curve analysis.
In short, he has some points. The notion that all wells would do close to a million Boe EUR doesn’t fit with the results to date but what he fails to point out is it also doesn’t fit with what most companies are saying. He points to one company who claims 500,000 boe /well and then claims that is high but doesn’t actually point out that the vast majority of operators are suggesting 200,000 boe/well which is in line with his claims. And an important point is if you don’t take the failed wells out of the statistical analysis then your results are completely invalid. There will be wells that do not work for one reason or another (usually operator error but not always) but they should not show up in the analysis because they are never produced. If , on the other hand, you were looking at capital investment per boe returned then they need to be included. All in all a pretty poor statistical analysis to my mind.
This is the danger in believing everything you see in the press. Even from someone who has some pretty impressive credentials it isn't unheard of to see a politicized point made that can only be backed up by bad analysis of a subset of data. No wonder the public hasn't a proper view of the industry.