Panel Analysis of Well Production History in the Barnett Shale

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1 Panel Analysis f Well Prductin Histry in the Barnett Shale Kenneth Medlck, Likeleli Seitlhek, Gürcan Gülen, Svetlana Iknnikva, and Jhn Brwning fr the study The Rle f Shale Gas in the U.S. Energy Transitin: Recverable Resurces, Prductin Rates, and Implicatins presentatin by Kenneth B Medlck III James A Baker III and Susan G Baker Fellw in Energy and Resurce Ecnmics, and Senir Directr, Center fr Energy Studies, James A Baker III Institute fr Public Plicy Adjunct Prfessr, Department f Ecnmics Rice University Nvember 7, 2012 James A Baker III Institute fr Public Plicy Rice University

2 Purpse The primary purpse f the empirical analysis is t test the statistical validity f the prpsed methdlgy (REI) fr mdeling well prductin. The REI methd prpses prductin, dented q t,i, can be mdeled as k REI ti, 0.5 The abve equatin can be transfrmed int q where the term ln k REI is well-specific. Mrever, we can test i whether r nt ρ = 0.5. = t ( ) ln q = ln k REI + ρ ln t ( ) ti, i i i i 2

3 Estimatin Estimatin is dne using lngitudinal mnthly prductin data fr ver 16,500 wells drilled in the Barnett shale cvering 1990 thrugh We include the well s prductin histry, as well as a set f variables t indicate the gelgical characteristics f the shale at the well s lcatin. We als include variable t indicate the size f the peratr, the year f first prductin, whether r nt the well has been refractured, and the average price f the 12 mnth strip f futures. We estimate the fllwing equatin ln q = u + α ln t + δ ln q + β ln p t, i i i t 1, i NYMEX, t + a prs + a tp + a TM + a TOC + a thick + a θ h + a press + a bg 1 i 2 i 3 i 4 i 5 i 6 i 7 i 8 i + b per + b per + b refrac + b length + b vintage 1 sm, i 2 med, i 3 i 4 i 5 i where u i is a well-specific term that can be mdeled as either fixed r randm. It turns ut that u i is treated as randm, meaning the ther included variables capture the systematic variatin between wells. 3

4 fr well i Variable Definitins t i dentes the time perid since initial prductin p NYMEX,t is the average f the 12 mnth strip f NYMEX futures prices, prs i dentes the effective prsity f the reservir, tp i dentes the depth t the tp f the shale, TM i dentes thermal maturity f the shale resurce, TOC i dentes ttal rganic carbn, thick i dentes the shale thickness after accunting fr the limestne intrusin, Φh i dentes effective prsity multiplied by thickness, press i is the reservir pressure, length i is the length f the lateral in hrizntal wells bg i dentes the gas frmatin vlume factr, per sm,i and per med,i are indicatr variables denting peratr size, refrac i is an indicatr variable denting a refracture has ccurred, and vintage i dentes the first year f prductin. 4

5 Estimatin Results Variable Parm Vertical Hrizntal lnt α *** *** ( ) ( ) lnq t-i δ *** *** ( ) ( ) lnp NYMEX,t β *** *** ( ) ( ) prs a *** *** (0.9352) (0.6723) tp a 2-7.1e-05*** *** (2.1e-05) (1.4e-05) TM a *** *** (0.0254) (0.0164) TOC a *** *** (0.0051) ( ) thick a *** *** (0.0002) ( ) Φh a ** ( ) ( ) Variable Parm Vertical Hrizntal press a *** *** (3.9e-05) (2.6e-05) bg a ** *** ( ) ( ) per sm,i b *** *** (0.0062) (0.0064) per med,i b *** *** (0.0067) ( ) refrac i b *** *** (0.0066) (0.0099) length i b 4 9.6e-05*** 8.6e-05*** (2.0e-05) (1.96e-06) vintage i b *** ** (0.0009) ( ) R Observatins 360, ,326 Sample Size 3,839 11,645 Nte: Standard errrs in parentheses, *** p<0.01, ** p<0.05, * p<0.1 5

6 Implicatins The equatin estimated represents a state-transitin equatin and, accrdingly, the term is interpreted as a shrt run effect. Thus, the prductin prfile f any well is path dependent, and by definitin, depends n prductin in the previus perid. Because f this, we shuld expect autcrrelatin in the residuals if we impse the restrictin δ = 0. By specifying the mdel as such, we want t test the hypthesis that ρ = -0.5, where ρ = α/(1 δ). It turns ut that we cannt reject the hypthesis that ρ = -0.5 in either vertical r hrizntal wells. In fact, we have Hrizntal: ρ = Vertical: ρ = S, the data supprts using the REI measure as a valid descriptin f well perfrmance in the Barnett shale. Nte that the decline prfile s mdeled is apprximated by a hyperblic decline mdel where b can be fit r numerically apprximated. 6

7 Simulatin Fitted Hrizntal Type Well EUR 2010 = bcf Sample Average Values Variables Vertical Hrizntal tp TM TOC thick perfzn phih bg press prs length price Fitted Vertical Type Well EUR 2010 = bcf 7

8 Marginal Effects f Gelgy and Other Parameters n Prductin Hrizntal Type Well Price Prsity Thermal Maturity Ttal Organic Carbn Perfratin Zne Length Refracture Operatr Size Depth Pressure Φh bg 8

9 A Nte n Refracs The value f the estimated parameter b 3 indicates that refractures imprve well prductin, in particular because b 3 > 0, meaning prductin will n average be higher after a refracture. Mrever, the degree t which prductin increases will depend n when in the well s life the refracture ccurs, and whether r nt the refracture is in a vertical r hrizntal well. If a refrac ccurs in mnth 12, the effect n prductin is given as: q pst refrac b 12 3 ln = + ρ ln q 1 δ 11 pre refrac where the calculated values fr hrizntal and vertical wells are given as: hrizntal: vertical: The baseline type curve is MMcf/d in a hrizntal well and MMcf/d in a vertical well, meaning the prductin increase s estimated is nt large 9

10 Questins/Cmments 10

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