Invited review

An unconventional mindset for shale gas surface facilities

M. Guarnone
a,
*
, F. Rossi
a
, E. Negri
a
, C. Grassi
a
, D. Genazzi
b
, R. Zennaro
a
a
Eni Exploration & Production Division, Via Emilia 1, San Donato Milanese 20097, Italy
b
Eni Corporate, San Donato Milanese, Italy
a r t i c l e i n f o
Article history:
Received 10 November 2011
Accepted 19 January 2012
Available online 2 March 2012
Keywords:
Shale gas
Surface facilities
Engineering
Unconventional
Life-cycle costs
Lean supply chain
Sustainable development
a b s t r a c t
Following the gas revolution occurring in the USA, where shale gas is contributing to abundant and
low-priced domestic gas production, many companies and countries all around the world are consid-
ering investing in this type of gas source. Key elements of shale gas production include the extensive
drilling campaign, the need for hydraulic fracturing (with its implication on the whole water supply/
handling cycle) and the realisation of a continuously growing network of geographically scattered
production facilities and owlines, which accompany gas from wellheads to the nal customers.
Exporting shale gas experience from the USA to new promising basins will not simply mean cus-
tomising subsurface technologies (such as drilling & completion or hydraulic fracturing) to a geologically
different area; it will especially imply adopting an unconventional mindset for surface facilities. First of
all, there may not be a context as fertile as in the USA in terms of existing infrastructures (pipelines,
treatment plants) or abundance of local contractors/providers, therefore an efcient engineering and
fast-response procurement and construction chain will be more crucial for life-cycle-cost minimization
than it is for conventional gas production.
Moreover, standardized and repeatable production facilities will likely be the most economically viable
way to handle gas ow from hundreds or thousands of wells, designed in parallel with step-by-step
territorial studies to locate those facilities considering geographical, infrastructural and legislative
constraints and opportunities. Finally, the passage from exploration to extensive commercial production
will likely require a proper appraisal campaign through a pilot development, especially in new areas,
with the objective to long-test shale gas wells performances and optimize full-development
approaches in an environmentally friendly way.
2012 Elsevier B.V. All rights reserved.
1. Introduction
1.1. Shale gas: whats and why?
Geologists in the oil & gas sector have always looked at gas
shales mainly as the source rocks fromwhich hydrocarbons migrate
and accumulate into geological structures. Conventional reservoirs,
indeed, are being exploited economically provided that sufcient
hydrocarbon volume is trapped by the cap rocks and that
a sustainable number of wells can be drilled to efciently drain that
volume. Gas shales, instead, act at the same time as source, reservoir
and trap.
A shale formation is a sedimentary rock composed of ne-
grained detrital mineral (silt-size particles of quartz and calcite)
and akes of clay and it is characterised by the presence of about 1%
to over 20% of Total Organic Carbon content (TOC). The amount,
type, and thermal maturity of this organic matter determine the
type and quantity of hydrocarbon in place, with gas content
increasing with TOC. Usually shale formations have very low
horizontal permeability and negligible vertical permeability, typi-
cally in the order of 10
2
to 10
4
md in the matrix, which mean that
gas is trapped and cannot move easily within the rock itself.
This type of hydrocarbon is currently contributing to about 25%
of domestic gas production in the USA after a production boomthat
took place in very few years; moreover its share in the energy mix,
as shown in Fig. 1, is predicted to continue growing (Annual Energy
Outlook, 2011).
Shale gas also becomes a topic of interest for mass media,
dened as a game changer, with tangible effects on the energy
markets fundamentals not only in the USA but generally in the
Atlantic basin: it certainly played a role in the drop of Henry Hub
gas prices, down more than 40% in the last 2 years while WTI crude
price remained in the 80 O100 US$ region during the same period
(CME Group,).
* Corresponding author. Tel.: 39 02 520 61148.
E-mail address: marco.guarnone@eni.com (M. Guarnone).
Contents lists available at SciVerse ScienceDirect
Journal of Natural Gas Science and Engineering
j ournal homepage: www. el sevi er. com/ l ocat e/ j ngse
1875-5100/$ e see front matter 2012 Elsevier B.V. All rights reserved.
doi:10.1016/j.jngse.2012.01.002
Journal of Natural Gas Science and Engineering 6 (2012) 14e23
It is therefore interesting to understand which drivers led to the
revolution that, in less than a decade, transformed gas shales into
a direct supply of abundant and commercially competitive shale
gas, inducing many oil & gas companies and investors to switch
their attention to the so-called unconventional resources.
The key solutions to unlock shale gas value are all aimed at
counterbalancing the low permeability of shales: the wells should
be drilled horizontally to maximise well/reservoir contact surface
and drainage area and they should also be stimulated to increase
the productivity of the shale, which is extensively done by
hydraulically fracturing the rocks. Both technologies e horizontal
drilling and hydraulic fracturing ehave been applied for more than
two decades to allow commercial gas production from coal seams
and tight reservoirs, but only in the recent years a signicant
learning curve has been experienced in drilling and completing
shale gas wells: in the Barnett shales (USA, Texas), during the last
5e10 years, drilling speed has more than doubled and D&C costs
have been halved.
These improvements, however, are not sufcient to explain the
magnitude of the shale gas phenomenon: its underpinning
opportunities along with its peculiar challenges have to be found
throughout the value chain, including the world of production
facilities. The following review will provide some technical and
contextual highlights from the point of view of an oil & gas oper-
ator, starting from a number of key subsurface aspects that inu-
ence surface facilities.
1.2. Subsurface challenges
When explorationists look for shale gas outside of already
producing shale gas basins, e.g. outside of Northern America, they
often face the difculty that well data resolution is large or very
large; for such reason the normal approach (quantication of well
data only) is not sufcient to describe properly the properties
distribution. The extrapolation of well data to the entire prospect
extension can be successfully supported by a Petroleum System
Modelling (PSM), i.e. the numerical simulation of the natural
processes governing the properties distribution over vast areas
(thousands of square miles). The outcome of a PSM typically is the
identication of a so-called sweet spot characterised by the most
favourable shale properties: maps of depth, thickness, organic
content, maturity and brittleness are compared against each other
and one or more optimum areas are selected for further studies or
exploration.
Here we have the rst example where an unconventional and
multi-disciplinary mindset is required. In many cases, indeed,
geographically identifying the perspective sweet spot for
exploration/pilot wells based only on geological and reservoir
parameters (as resulting from a PSM approach) may lead to
undesirable situations: gas can be produced efciently but then
there may not be enough infrastructures in the area to economi-
cally transport it to the customers, or there may be an unacceptable
impact by production sites on communities, ora and fauna.
When evaluating a new area, once the sweet spot has been
identied, a key-step in the workowof an oil & gas operator is, on
one side, the evaluation of a preliminary drilling & completion
prole and, on the other side, the estimation of the most likely
production decline curves for a single well.
As already mentioned, horizontal drilling is a must to
commercially produce from low permeability shales; important
cost savings are obtained by increasing the horizontal length (up to
about 10 000 ft) and by deviating wellbore proles allowing clus-
tering of wellheads and D&C operations (wellpad approach).
Moreover, fracturing has to be performed, which means to isolate
sections of the well in the producing zone, then to pump uids and
proppant down into the wellbore through perforations in the
casing and out into the shale. In the deeper high-pressure shale, it is
common to pump slickwater (a low-viscosity water-based uid)
with proppant. Ideally, a higher number of hydraulic fractures
correspond to more gas produced. However, a balance between the
number of fractures and the costs of these treatments must be
found, in order to achieve the optimal number of frac jobs to be
performed by well.
Gas in shale formations can be either adsorbed on organic
matter and mineral surfaces or occur as free gas in pores and
natural fractures. Adsorbed gas is released only at a later stage
when formation pressure declines; its quantities vary signicantly
from one shale to another, contributing to the statistical variability
observed in the proven basins. The gas in pores and fractures,
instead, is produced immediately (migrating by Darcy ow) and
represents the dominating mechanismat the initial phase of a shale
gas well, but, due to the limited storage capacity of the fractures,
the initial rate typically declines steeply. In general, gas shale wells
have a high initial production rates followed by a steep decline of
the initial production (70%e90%) within few years (see Fig. 2).
Depletion rates are very important to identify because they will
determine how long each well will produce in order to pay off the
cost of the well and the associated surface facilities. Avariety of well
production decline curve models for the various shale plays have
been published in the literature that contemporaneously take into
account the presence of both free and desorbed gas. Shale gas
operators use combinations of the decline curves determined by
Arps in 1945, to t the single-well production data, but there is
a high degree of uncertainty and unknown in predicting both Initial
Production (IP) and Estimated Ultimate Recovery (EUR) for a shale
gas well, with risk of over-estimating production performances
(Baihly et al., 2010).
Fig. 1. US EIA Annual Energy Outlook (2011) (TCF/year).
Fig. 2. Statistical variability of decline curves.
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 15
2. From shale gas wellheads to customers
2.1. Clustered wellheads and production equipment
Typically, a wellpad can accommodate from 4 up to 10 wells.
Recently, the tendency is to increase the number of wells per
wellpad, in order to reduce the impact on the environment by
reducing the number of wellpads. As reference, a minimum of 8
wells is considered for a typical design of a wellpad.
In addition to the wellheads, the wellpad accommodates the
gas-liquids separators, one for each well, and the produced water
tanks, as shown in Fig. 3. In case of presence of condensates in the
gas stream, these are separated fromthe gas and the water streams
in the separators and stored in dedicated tanks.
Produced water is then loaded on trucks and moved to central
treatment facilities for re-injection or re-use (see Section 2.3). All
the utilities required by the wellpad facilities must be present in the
wellpad design if not already available in the vicinity.
A typical wellpad layout is characterised by a large unused
space, with the wellheads in the middle and the production facil-
ities located on a side. This because the space required by the
drilling rig and by the fracturing operations is much larger than that
required by the equipments and these operations are leading the
execution schedule, therefore are usually carried out with the
production facilities already installed. In addition, free space must
be foreseen around the wellheads for possible wells workover
operations.
In addition to the above process and utility facilities, a wellpad
could be provided with lift gas facilities. As water production could
be very high especially in the rst months of production, lift gas is
required in order to increase the gas production or, in some cases, to
restart it after a well has been stopped and then ooded with
liquids.
Lift gas system is essentially composed by a multi-stage inter-
refrigerated reciprocating gas compressor installed directly within
the wellpad fence. As it is required for the rst months of
production, it is usually a rented machine which is removed once it
is no longer required.
In a well-designed full-eld development conguration, lift gas
production can be centralised. Lift gas compression facilities are
permanently installed into the hub and properly designed to
accommodate the lift gas prole required by the whole eld.
Typically, a modular and expandable design should be foreseen.
Similarly, produced water, after a minimal treatment for solids
and sand removal, can be pumped to a central water treatment hub
by means of pipelines, in order to minimise trucks operations,
which are far more expensive and less environmentally friendly
than using water pipelines.
Sand management is another important issue: sand is used as
proppant for hydraulic fractures, but some of it inevitably returns
back during gas production. Gas separators should be equipped
upstream with sand-removal devices and internally with sand-
cleaning tools, in order to prevent and avoid possible obstruc-
tions due to deposits of sand.
2.2. Gathering networks and treatment plants
The very high number of wells and wellpads characterising
shale gas developments is directly inducing a multi-phased
production prole with very long ramp-up period. This is due to
the fact that all the wells and wellpads cannot be put into
production all together, as drilling operations continue for the
whole eld life and they are required to maintain the production
plateau.
The resulting production prole could look like as in Fig. 4, with
a very gradual ramp-up (lasting typically many years) and a plateau
maintained only if new wells are continuously drilled and put in
production.
The gas produced by all the wellpads has to be collected and
brought to a central treatment plant, or hub. In the central hub gas
is treated up to export/marketing grid specications. When it is dry
and sweet the treatment process is limited to a conventional
dehydration preceded and/or followed by gas compression;
different quality of feedgas may require gas sweetening and/or
Natural Gas Liquids (NGL) extraction. In addition, produced water
has to be routed to a treatment plant for re-injection or re-use.
Furthermore, lift gas must be compressed and sent back from the
hub to each wellpad as required by the producing phase.
As the typical pressure prole of a well sees a rapid decrease
soon after the rst months of production, the gas gathering
network has to be designed for low operating pressures, namely
about 5 bar. This parameter is strongly inuencing the overall
production of the eld, especially after the rst years of production,
as an increase of the gathering network operating pressure (e.g.
determined by new wells being tied-in) causes a certain number of
older wells, producing at low pressure, to be abandoned. On the
contrary, keeping a low operating pressure in the gathering
network allows having a higher production rate for a longer period.
As a drawback, this requires more compression power in the hub
and larger pipelines diameters.
Fig. 3. Wellpad production separators and water tanks. Fig. 4. From single well to eld production forecast (Guarnone et al., 2010).
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 16
The presence and the development level of the midstream
gathering & transport network is one of the necessary conditions
for a successful development of a shale gas asset. As a matter of fact,
the construction of a long pipeline to connect the hub with a distant
gas network has a strong impact on the economic sustainability of
the initiative, as a high CAPEX would be required in the very rst
years when the production is quite low, as discussed above.
In the US, this condition was one of the most important enabler
of the shale gas revolution, being the national gas network very
well developed, as can be observed in Fig. 5.
This leads to important consequences for the central treat-
ment hub.
Primarily, the plant has to be designed taking into account the
capability to be expanded in a modular way in order to follow the
long ramp-up period.
Secondly, even once the plateau is reached, this is characterised
by feedgas owrate uctuations due to the continuous drilling
operations required to sustain the plateau. This drilling activities
requires the shut-down of the entire wellpads in which the
impacted well is located and sometimes also the nearby wellpads
are stopped to avoid interferences between the fracking and the
production of the wells in the vicinity.
For this reason the central treatment hub should be designed as
made up of several trains, especially for those equipments more
impacted by variations in gas owrates.
A strong interaction between surface facilities engineering and
drilling & completion activities is mandatory in order to minimise
production uctuations.
2.3. Flowback and produced water treatment
Water management issues are associated to every stage of
shale gas development and can impact operators costs, environ-
mental sustainability and public acceptance. Covering the whole
water cycle, the rst crucial step is fresh water supply from public
or private sources, which may be subject to restriction in certain
areas. Then, water is typically stored in above ground ponds with
a capacity that varies from 100 000 to 1 000 000 bbls or more and
depth from 10 to 25 ft. Water usage in shale gas industry is rep-
resented by drilling and fracturing activities (respectively 10% and
90% of total demand). During a fracking job, about 10 000 bbls per
stage are required, so a typical well of 6000 ft of horizontal length
with 15 stages implies a water volume close to 150 000 bbls.
Considering that a fracking crew is able to perform 3 stages per
day, the water demand is close to 30 000 bbls per day, obtained by
quickly draining the above mentioned water pond(s). This is the
reason why, in many cases, a network to link different ponds is set
up in order to create a signicant water buffer; this ensures that
the required amount of water supply does not exceed maximum
water wells withdrawal capacity. In the last phase of water cycle,
once a wellpad has been drilled and completed, wells are put in
production by means of dedicated temporary facilities with robust
water and sand separation systems: this operation, often con-
ducted by service companies, is called owback phase and
usually lasts approximately 2e4 weeks after start-up for a typical
wellpad; in the mean time permanent production equipment is
installed and put into service as a second separation stage,
allowing commercial export of gas. Water rate from each well,
during owback phase, is considerable, since it can be as high as
3 000 bbls per day in case of a 6 000 ft horizontal drain, but it
drops dramatically and after few weeks reaches values in the
order of 1000 O1500 bbls per day that can be handled by the sole
permanent production equipment. From that moment, water is
stored in water tanks and exported fromwellpads either by trucks
or by export pipelines.
Before addressing unconventional aspects of water treatment
facilities in shale gas business, some non-exhaustive but indicative
highlights are provided on owback/produced water composition.
Fracturing water typically consists of about 98 O99% water and
sand, and 1 O 2% chemical additives, blended on-site just before
pumping uids into wells in order to enhance and optimize the
uid dynamics while preserving well and reservoir formation
integrity. The resulting owback and produced water still contains
many chemical substances in addition to the dissolved salts and
chlorides (TDS e Total Dissolved Solids) and to the entrained sand/
proppant particles (TSS e total suspended solids).
Fig. 5. Extensive gas treatment and transport network in the USA (US EIA DoE).
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 17
The characterisation of such water is crucial to dene the proper
treatment/handling solutions, but it is difcult to be conducted for
several reasons. Firstly, a big statistical variance is associated to
water quality when looking at different wells even in close prox-
imity, reecting complex interactions between fracturing uids and
shale rocks. Secondly, service companies only recently have
increased the transparency on fracturing water chemical additives
and intellectual properties on their receipts still hinder the full
disclosure of the exact composition of the various substances
blended in the fracturing uids.
Governments and regulatory bodies also outside USA are look-
ing at this complex topic and they are increasingly worried about
the consequences of extensive use of fracturing uids projected for
promising shale gas basins. The European Commission, for
instance, identied a list of 260 substances provided by the New
York State, out of which 58 have one or more properties that may
give rise to concern: in particular, substances such as Acrylamide,
Benzene, Ethylbenzene, Isopropylbenzene, Naphthalene, Tetraso-
dium Ethylenediaminetetraacetate, Hydroxylamine hydrochloride
are classied as priority potential hazards, some of them being
toxic, carcinogens, bioaccumulative (European Parliament, 2011).
It is important to note that such components are present at very
low concentration in the owback/produced water and that most
are already well known in other industrial sectors, being used for
instance in the cosmetics, in the food or in the household/deter-
gents industry (US Department of Energy and National Energy
Technology Laboratory, 2009). This is positive, on one side, but, at
the same time, represents a challenge for the upstream oil & gas
industry, typically not used to handling such components.
Shale gas produced water in the U.S. is generally disposed
through under-ground injection and/or treatment for release or re-
use. Under-ground injection through disposal wells is the preferred
disposal method: in this way, only a basic ltration and suspended
solids settlement is foreseen in order to protect injection equip-
ment, wellbore and formation from solids erosion/entrappement.
Public concerns about the amount of water used for shale gas
operations, coupled with the lack of adequate large scale disposal
capacity, have caused some operators to explore treating and/or re-
using the produced water.
Depending on the nal use, produced water may be treated for
discharge to surface waters or it may be treated and re-used in
subsequent fracture operations. Looking at the overall water
treatment process, it could be easily divided into two main
sections.
The rst can be called pre-treatment and comprises all the
processes necessary in order to reduce TSS and heavy metals. This
goal can be achieved by means of different technologies such as
hydrocyclone separation, electrocoagulation, occulation, resins
adsorption and softening that properly combined together allow
reaching the desired output in terms of water specications.
The next step, the core-treatment, is to reduce TDS and
chlorides, which can be performed by following two different ways
depending on the specic water features. For inlet TDS value close
or lower than 30 000e40 000 ppm, physical separation seems to be
the most technically and economically feasible option, with proven
technologies such as ultra-ltration, nano-ltration and reverse
osmosis: these ensure the achievement of treatment targets with
relatively low costs, CAPEX and OPEX typically being in the range
1.5e3 US$/bbl in Northern America contexts. For higher inlet
TDS value, instead, thermal technologies (namely mechanical
evaporators and crystallizers) are candidate to provide higher
efciencies and recovery factors (more than double compared to
a physical process, e.g. reverse osmosis) but they imply nal costs
internally estimated to be as high as 3e6 US$/bbl for the full
water treatment cycle in Northern America contexts.
3. An unconventional mindset to unlock shale value
3.1. Modelling multi-asset facilities
When planning a shale gas development with several tens to
hundreds of wells, a modular facilities approach is recommended,
meaning that a few building blocks can be designed and used
repeatedly. This well-used US philosophy demonstrated several
benets, including:
B avoiding continuous rework to design new customised instal-
lations for new productions;
B simplifying procurement of goods and services, enabling
signicant cost savings;
B speeding the permitting process, since stakeholders become
familiar with the facilities.
Modularisation can be applied at both plant and eld level. Plant
level design approaches have been already mentioned in Section
2.1 and 2.2. At the eld level, the building blocks are essentially
the well cluster facilities (or wellpads), the connecting pipelines
and the treatment plants. Starting from the experience gained in
collaboration with Quicksilver in the Barnett shale, typical eld
level modularisations are being studied, such as the example
shown on the left in Fig. 6, which is hereafter referred to as
a complex.
Fig. 6. Possible scheme of a repeatable complex (left) and multi-complex scenario (right).
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 18
A complex is composed of a number of wellpads (20 in this
case, each collecting production from8 wells, represented in black)
that send efuents to a treatment hub by means of pipelines (here
two types, in blue and violet colour depending on the expected
maximum owrates). If a reasonable spacing of about 4 horizontal
wells per square mile is assumed, the described complex would
theoretically drain an area of about 40 mi
2
(w100 km
2
) with 160
wells. Broader developments can be based on a sequential real-
isation of multiple complexes, as depicted on the right side of left
in Fig. 6; in such situation it is likely that only one of the treatment
hub performs the complete gas treatment up to commercial grid
specication, the other hubs being simpler satellites for gas
boosting and water handling.
An example of the unconventional challenges related to such
schemes can be summarised within a simple question: what is the
optimum number of wellpads that can be connected to a single
treatment hub? Two extremes have to be avoided:
B too few wellpads per complex would not justify a dedicated
central plant, since lack of economies of scale generate higher
specic gas costs;
B too many wellpads per complex would mean longer paths of
gas from the wellheads to the plant, up to a point where gas
boosting and/or higher diameter pipelines become mandatory
for the most peripheral wellpads, again generating higher
specic costs.
When modelling multi-asset systems such as shale gas ones, an
unconventional mindset should be applied especially on the
upstream installations and on the gathering network, with criteria
that could be in contrast with those usually applied in conventional
oil & gas plants.
For instance, as the whole full-eld gas production is the
resulting production of hundreds of wellpads, it is extremely
important that a wellpad is designed with the objective to reduce
its costs to the minimum, as a non-optimized design would be
repeated hundreds of times. On the other hand, from an overall-
production point of view, it could be acceptable to temporarily
loose the production of one wellpad, as this could minimally impact
the eld production. For this reasons, wellpad critical equipments
are never spared nor overdesigned in order to reduce the costs,
leading to an extremely simplied and low-cost design.
Another example of unconventional aspect is the fact that gas,
water and utilities lines should be properly designed since early
stages and they should be able to be expanded during the project
life in order to accommodate a gradually increasing production of
the eld and at the same time to assure a full availability of gas
supply to the plant. For these pipelines, operating at low pressure,
as well as for water pipelines, which contain a non-hazardous uid,
the use of special plastic materials should be investigated, with the
aim to reduce the costs and to ease the installation, with a saving
for the schedule.
As a nal consideration on surface developments, it is stressed
that passing from conceptual design phase to real application often
implies signicant deviations from the theoretical and geometrical
models initially conceived. Deviations from early plans often occur
in normal oil and gas initiatives, but they are inherently more
frequent in shale gas developments, since:
B heterogeneity among wells and productive areas can be quite
high,
B drilling campaigns and continuous inlling projects cover
a much longer period than for conventional developments,
therefore long term planning is necessarily quite generic and
exible, leaving room for year-by-year adjustments
It happens, as an example, that wellpads have to be distributed
quite irregularly over a certain territory in order to respect urban-
istic or geographic constraints, as depicted in Fig. 7.
3.2. Life-cycle costs and uncertainty management
Shale gas production is an attractive business for oil & gas
operators as soon as there is condence that gas can be produced
commercially and in a sustainable way in a certain region; this,
however, may pass through a rst period with initially low prots/
margins, reecting an early effort to establish a gathering and
treatment system, a local operating structure (afliate or similar)
and an effective relationship with all stakeholders.
It is therefore evident that cost estimation plays a key role since
early evaluations of new shale gas opportunities, because it
supports the economic evaluation and approval process for
acquiring or not an exploration permit or a stake in a promising
basin.
At the same time, however, the costs structure of a shale gas
development is substantially different from conventional produc-
tion, which makes quite difcult the task of cost estimation.
Firstly, drilling & completion activities, along with surface
facilities installations, are spread over many years, in order to
continue increasing (initially) and maintaining (at later stage) the
annual production target. As a consequence the CAPEX, that would
be typically concentrated in few years after FID of a conventional
development, are in this case more similar to OPEX (Cingolani,
2010). But estimating signicant OPEX-like investments requires
a sufciently accurate prediction of the time when they will be
required, which in turns depends on:
B the prediction of Decline Analysis Curves to model single wells
and overall eld performance;
B the external variables affecting investment decisions, such as
price scenarios, costs framework, competing business oppor-
tunities, again uncertain to forecast on a long time-frame.
Secondly, as already mentioned above, shale gas production is
essentially a repetitive business, therefore it presents huge poten-
tial for continuous improvements on many fronts, including surface
facilities. Such effect can be taken into account in the cost estimate
exercises by applying learning curves that progressively reduce
specic costs (e.g. of a wellhead separator) with a predened rule.
Learning curves for surface facilities are difcult to estimate, but
neglecting them at all would imply an excessively conservative
Fig. 7. Aerial view of irregular wellpads distribution in Louisiana (eni source).
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 19
approach. Aspects to be taken into account as drivers for learning
effects include the following:
B contingency reduction on investments, due to increasingly
higher condence in repeatable facilities and geographical
proximity of subsequent installations;
B procurement costs savings due to increasingly more optimized
contracting strategies and due to the increasingly higher
procurement volume;
B costs reduction due to lessons learned, minimization of over-
design and removal of bottlenecks.
The above considerations imply the need of exible cost esti-
mating tools that enable a quick evaluation of threats and oppor-
tunities for fast-response of decision makers. It is also important to
have an immediate picture of the most impacting cost items, and
this can be communicated in different ways depending on the time-
frame object of the analysis.
Fig. 8 shows an indicative example of costs analyzed for a shale
gas initiative by allocating common infrastructures costs propor-
tionally to single wells. It appears that subsurface costs are
predominant when looking at a short time-frame, until the 3rd year
after start-up, while investment and operating costs for wellpad
facilities and for treatment/transport systems become more
important when looking at the full life of each single well.
It is a common believe that shale gas business has little explo-
ration risk compared to conventional gas accumulation. It is more
correct to say, however, that the risk moves to the commercial
producibility of gas that depends on the costs versus prices posi-
tioning. Costs, in turn, depend on many technical uncertainties,
inducing project teams to make assumptions, e.g. on predicting
owing pressures, presence of contaminants in gas, associated
water owrate/composition, etc. As an example, Table 1 shows the
annual expense of water treatment that would be generated by
various indicative eld water rate values and by applying different
specic water treatment costs reecting the spectrum of technol-
ogies depicted in Section 2.3. Froma cost prediction point of view, it
is evident that the combination of uncertainty both on water
quantities and on the effective treatment strategy could result in
annual water costs varying by more than an order of magnitude
from the cheapest to the most expensive situation.
The nal remark on this matter is therefore the need for a cost
analysis throughout the project life, that has to be quickly set up at
early stages of business opportunities and that has to be tuned
according to actual costs once reaching the commercial production
stages. Such analysis should incorporate the management of
uncertainties typically encountered in shale gas projects.
3.3. Fast and cost-effective supply chain
The exploitation of unconventional reserves needs specic
techniques to be implemented and this affects the whole process
from exploration to nal gas customers, including supply chain
management & procurement as well.
Economic performances of a Shale Gas development Project can
be positive only if Design-to-Cost methodology
1
is extensively
applied to the integrated cycle of activities, without compromising
on safety or on business sustainability, and this principle has a high
impact on the planning and performance of the procurement
activities.
Such strategic target can be achieved both by a large standard-
ization (Mancini et al., 2011), simplication and achievement of
synergy for each sub-portion of scope and by project activity within
the integrated cycle including procurement/supply chain
management.
It is important that Procurement is involved from the beginning
in the denition of the development strategy, in order to start as
soon as possible the scouting of the market of suppliers of goods
and services, with an extensive use of market intelligence tools: in
this way, especially when entering an area with not yet established
oil & gas industry, it is possible to know the alternatives proposed
by the market, in terms of contract strategy (EPC, Service or mixed
strategy) and compensation mechanism (purchase, rental or lease)
to assess projects economics. The alternatives will be assessed in
an SWOT analysis
2
to select the most suitable for the specic
development scenario.
The process shouldbe implemented inanearlier stage compared
to the traditional eld development strategy. The procurement
approach to pilot project aims at the full-development scenario as
FIRST 3-YEARS COSTS
Drilling
Frac &
Compl
Gas
Transport
to Market
Upstream
Gathering &
Treatment
Wellpad
Facilities
FULL LIFE COSTS
Drilling
Frac &
Compl
Wellpad
Facilities
Upstream
Gathering &
Treatment
Gas
Transport to
Market
Fig. 8. Indicative costs breakdown of a shale gas initiative (eni source).
Table 1
Example of uncertainty in cost estimate (eni source).
Annual absolute expenses for water management (MMUS$)
1.5 US$/bbl 3.0 US$/bbl 6.0 US$/bbl
5000 bbld 3 5 11
15 000 bbld 8 16 33
25 000 bbld 14 27 55
1
Design-to-Cost is an approach where design goals are constrained by available
funds; in other words, investments become an independent variable used as input
data rather than being a dependent outcome of a design phase.
2
Business tool to evaluate the Strengths, Weaknesses, Opportunities and Threats
of a series of alternatives.
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 20
a target, so early stages scouted alternatives should be assessed to
achieve the full scale development scenario in the most effective
and efcient way.
The process is phased in different steps to gradually go into
more detailed assessment of the market and vendors available to
full project development strategy, as shown in Fig. 9.
Strong integration with the project team and local branches will
help to have a smooth process during execution phase. Further-
more the knowledge of the suppliers market acquired in an early
stage of the project will help the development phase to have a fast
reply from vendors.
Contractual tools to be implemented shall also be tuned and
addressed to achieve the unconventional aspects of a shale gas
development, in particular decisional and operational exibility,
nancial exposure minimization and fast reply from Vendors.
From this point of view, shale gas business is more similar to
manufacturing business.
A key example is the wellhead gas-liquids production separator,
which has to be ordered and fabricated hundreds of times for
a multitude of wells, and then installed regularly, following the
stringent wellpad start-up schedule. But the same concept is
applicable for example to the wellheads, their control panels, etc.
The production of such equipment would be too long and too
expensive if based on a dedicated job order every time there is
a new well to be tied-in. On the contrary, the best condition would
be the establishment of a continuous production at a manufacturing
workshop, possibly not far from installation sites, in order to
minimise the time-to-market and catch the opportunities of
a exible business. In other words, the so-called lean production
concepts should be applied to reduce production costs and time-to-
market (Cassidy, 2010).
The focus should be on Open Book Contracts, Multi Service
Contracts with short tender activation process and, where appli-
cable, Framework Agreements and Master Service Agreements. Key
tools to be included could be incentive mechanisms based on KPI
and demand planning/forecast tools to improve performance and
achieve cost saving.
Vendor pre-qualication requirements should also be aligned
with new requirements in order to allow standardization and
competition among vendors. This will facilitate the implementa-
tion of the contractual tools described above.
Shale gas can lead the market to develop new business model.
Furthermore the development strategy is phased and modular,
adjustable during the progress of the eld. This means that
Procurement will have an active and continuous role to achieve
cost optimization, as shown in Fig. 10.
The market analysis process should be an active and live
process, in order to capture any major change and newopportunity
arising from new business model that can be assessed to achieve
costs optimization. This can be the result of changing the mix of
providers/vendors, changing remuneration principle (rental/lease/
purchase) and different level of integration of the supply chain.
3.4. Territorial analysis for facilities design
The exploitation of shale gas has a considerable surface impact,
especially given the large number and frequency of wellpads
required for production. In populated areas, limitations stem not
only from the physical (such as land-use, hydrography, hydrology,
morphology and climate) and environmental characteristics of the
area (such as the presence of protected, sensitive or valuable areas)
but are also linked to the presence of human settlements and
activities.
The analysis of spatial data plays a key role in planning activities
for the exploitation of shale gas. Acareful study of the elements that
characterise the area prevents unwanted complications and facili-
tates the development of operational activities. To this end, as of
early stages of project design, it is necessary to acquire spatial data
which, when cross-referenced with the project, enable a timely
identication of needs and criticalities.
Topographic maps, satellite images, thematic maps and vector
data feed into a Geographic Information System (GIS) which
supports spatial analyses and the development of maps high-
lighting needs and criticalities. In populated areas, indices of
urbanization, distinguishing among isolated dwellings, urban
conglomerations and densely urbanized areas, are carefully
assessed, creating a buffer indexed according to the different
typologies found.
Shale-gas operations involve a massive use of water, therefore
rendering important to investigate the presence and availability of
water in mining areas. Limits imposed by local legislation, and by
national and international standards, as well as those internally
established by the company, are included into the analysis. The
position of protected areas also signicantly affects the nal
evaluation.
The integrated analysis of these parameters allows for the
identication of those areas potentially suitable to host the project
infrastructures.
A second phase of the analysis includes completing the locali-
zation on the basis of engineering and logistics criteria such as
interface with the existing gas grid and distance to customers, road-
trafc system and the electricity network.
The analysis is concluded with a possible on-site eld survey
that conrms and elaborates the considerations arrived at through
the GIS analysis. During the survey a team of engineers, geologists,
agronomists, and cartographers evaluates the areas characteristics
bearing in mind project technical requirements regarding alloca-
tion of wells and gas transmission infrastructure. Preliminary
information concerning the availability and cost of potentially
interesting portions of the territory are acquired during the survey.
The use of local mediators with the support of technical experts
certainly facilitates the nal land acquisition negotiations.
The result is a number/series, albeit limited, of congurations
that meet the requirements of efciency and sustainability, such as
illustrated in an example of wellpad location in Fig. 11.
Fig. 9. Procurement process outline.
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 21
3.5. Exploration Extended Engineering
The above considerations bring to the conclusion that one of the
most unconventional aspects of shale gas business, from an oil &
gas operator point of view, is the need for a very different workow,
impacting on surface facilities design approach.
A newshale gas exploration initiative, in order to be progressed,
needs early contributions of reservoir, drilling/completion and
development/facilities people, so that a candidate sweet spot can
be identied for exploration pilot wells.
Once this is xed, development engineers can start working on
the feasibility of a production pilot phase, to be realized as soon as
exploration pilots provide good results; objectives of the pilot
phase are multiple, including the following:
B understand the productive potential of the geological forma-
tions (condence on geological risk)
B acquire technical and operational know-how, in terms of
geology, reservoir, drilling and facilities
B initiate the learning curve and lowering costs for the
development
B gain experience in all commercial aspects relative to the
territory
B study the territory and the reactions of stakeholders and
inhabitants in the area
B set up a sound internal organizational structure
Operation would then take over the management of the rst
producing assets, but their role is also to provide important feed-
back to exploration and development people, whose work, indeed,
does not end with the rst gas. On the contrary, all sectors of an oil
& gas company, when dealing with a shale gas initiative, have to
continue working in parallel on the same play area for several years,
as schematized in Fig. 12.
The workow of a shale gas project can be summarised by the
concept of Exploration Extended Engineering, where all decisions
are taken by an integrated multi-disciplinary team of geologists,
engineers and commercial experts, all aware of the challenges and
opportunities not only of their own discipline but also of the
others.
Surface facilities design, in terms of global transport and treat-
ment sizing and scheduling, has to be aligned as early as possible
with eld production proles, drilling campaign schedule and gas
production/marketing proles. Only in such way the overall project
efciency can be guaranteed (Fig. 13).
Fig. 10. Procurement and costs optimization.
Fig. 11. Example of wellpad location identication (eni source).
ENG
EXPLO
OPERATION
EXPLO
ENGINEERING
OPERATION
Sweet spot Upside area 1
EXPLO
OP
Upside area 2
Pilot prod TIME
ENGINEERING
Fig. 12. Exploration Extended Engineering.
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 22
4. Concluding remarks
Shale gas phenomenon has revealed its solid basis in North
America, being expected to account for the majority of the growth
in natural gas supply in this region, namely more than 50 percent of
the supply portfolio by 2030 (Annual Energy Outlook, 2011).
The US experience in particular is suggesting that a shale gas
development has to be approached with an unconventional mindset
leveraging on a series of key-concepts:
B multi-disciplinary integration
B gradual expansion
B wells tie-in phasing optimization
B modularity
B design-to-cost
B standardization
B supply chain efciency
B operating experience
Nevertheless translating these concepts into a model to be
transferred to rest of the world it is not so straightforward. As
a consequence of the current tight energy market scenarios,
extraordinarily high project efciency is everywhere required. This
goal is achieved by creating a network of skilled resources, working
with an integrated multi-disciplinary approach dynamically
oriented to the common target of maximising the overall project
protability, without compromising on personnel safety, environ-
mental protection and stakeholder value assurance. Unconven-
tional aspects are, in fact, not limited to the subsurface challenges
but dramatically impact on the surface developments. Facilities
modularity and phasing through appropriate design standardiza-
tion, strong interaction between surface facilities engineering and
D&C schedule, sharing of the existing local infrastructures and
resources, like treatment & transport ones, are only few examples
of project efciency.
When applying these concepts, a new unconventional mindset
is required which asks for an early involvement, since the explo-
ration stage, of the project development and engineering.
This helps to catch since the beginning the right synergies
between subsurface with the surface facilities development for
a protable shale gas project. It may happen that the identication
of a sweet spot could be penalized in its development by territorial
constraints (physical, environmental, anthropological or by limited
access to the local infrastructures). Much of the engineering activity
could identify at early stage possible issues through the involve-
ments of disciplines like system integration, procurement, territo-
rial analysis as well as domestic & regional market analysis. The use
of an integrated model capable to represent from a technical and
economical standpoint the whole development phases (Pilot, Early
and Full production) could be of outmost importance to identify the
key investment decision making metrics.
Leveraging on Northern America experience, when starting
a new shale gas development, especially in a new play, an initial
Pilot Phase, starting from the sweet spot is very important to gain
a better understanding not only on subsurface aspects (geology,
reservoir, drilling & completion) but to gain operational and orga-
nizational know-how as well as a sustainable relationship with
stakeholders. Moreover the Pilot phase may also provide solution to
one of the main issue related to shale gas industry: the water
management. It could be of outmost importance to validate at pilot
scale economic solutions to potentially recycle owback water and
reduce its environmental impact, even optimizing fracking job.
The concept of sustainable unconventional play development,
aimed at reaping the maximumresources in a given acreage, can be
summarised as a triple E or Exploration Extended Engineering
process, where all decisions are taken by the integrated asset team,
from project inception to abandonment, with the goal of max-
imising project returns in a low margin environment.
Acronyms
CAPEX Capital Expenditure
D&C Drilling & Completion
EoI Expression of Interest
EPC Engineering, Procurement & Construction
FID Final Investment Decision
GIS Geographic Information System
KPI Key Performance Indicators
OPEX Operating Expenditure
PSM Petroleum System Modelling
SWOT Strengths, Weaknesses, Opportunities & Threats
TDS Total Dissolved Solids
TSS Total Suspended Solids
USA United States of America
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Fig. 13. Surface facilities: part of an integrated workow.
M. Guarnone et al. / Journal of Natural Gas Science and Engineering 6 (2012) 14e23 23