Going from Optimization to Innovation

in Unconventional Oil and Gas

PROPEL Energy Tech Forum
March 2016

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4 About ADI Analytics

4 Going from Optimization to Innovation in Unconventional Oil and Gas

www.adi-analytics.com

ADI Analytics is a boutique consulting firm serving energy

and chemical companies with passion, rigor, and expertise
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4 About ADI Analytics

4 Going from Optimization to Innovation in Unconventional Oil and Gas

www.adi-analytics.com

Key messages

Rocks matter more than you think First movers among North American
unconventional players are benefiting more from operational best practices.

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North American unconventionals was a small business

revolution and not led by Big Oil

Pioneers

Fast
followers

Acquirers /
late entrants

Experience and Capability in Unconventionals

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First movers who pivoted quickly away from gas to oil and
liquids acreage EOG and Pioneer have done really well
Investment Performance for Top Operators
(Total Shareholder Return, 2012-15)

44%

42%

EOG

PXD

OXY
-29%

COP

APC

-36%

-37%

DVN

APA

-49%

-51%

ECA

-73%

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CHK

-81%

Key messages

Drilling rig productivity and multi-well pads have provided most of the cost
reductions in North American unconventionals.

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Drilling costs for unconventional oil and gas wells have come
down significantly
Drilling Costs in the Eagle Ford
(USD Per Foot)
$127
$106
$99
$90

$91
$81

2010

2011

2012
Equipment

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2013
Consumables
10

2014
Other

2015

$75

2016

 With varying levels of reduction across key categories

Drilling Costs in the Eagle Ford
(USD Per Foot)
$127
$106
$99
$90

$91
$81

2010

2011

2012
Equipment

www.adi-analytics.com

2013
Consumables
11

2014
Other

2015

$75

2016

Cost reductions in the past 18 months, however, have come

mainly from deep price discounts for oilfield services
Drilling Costs in the Eagle Ford
(USD Per Foot)
$127
Deep discounting of
oilfield services

$106
$99
$90

$91
$81

2010

2011

2012
Equipment

www.adi-analytics.com

2013
Consumables
12

2014
Other

2015

$75

2016

Through 2014, rig productivity and multi-well pads cut drilling

costs but drill bits and drilling chemicals have changed little
Drilling Costs in the Eagle Ford
(USD Per Foot)
$127
$106
$99
$90

$91

Consumables
= -7%

Equipment
= -26%

2010

2011

2012
Equipment

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2013
Consumables
13

2014
Other

Key messages

Completion costs have not really fallen and could be fertile ground for new
technologies and innovation.

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14

Completion costs have also fallen but more slowly in

comparion to drilling costs
Completion Costs in the Eagle Ford
(USD Per Foot of Lateral Length)
$756
$653

$639

$660
$550
$442

$292

2010

2011
Stimulation

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2012
OCTG

2013
Equipment
15

2014

2015

Water disposal

Total

2016

Perforation and frac stimulation is the largest cost item; the

share of other cost categories very significantly by play
Completion Costs in the Eagle Ford
(USD Per Foot of Lateral Length)
$756
$653

$639

$660
$550
$442

$292

2010

2011

2012

Stimulation
www.adi-analytics.com

OCTG

2013
Equipment
16

2014

2015

Water disposal

2016

Aggressive cost reductions seen recently are mainly due to

oilfield service discounts versus efficiency or innovation
Completion Costs in the Eagle Ford
(USD Per Foot of Lateral Length)
$756
$653

$639

Deep discounting of
oilfield services

$660
$550

$442

$292

2010

2011

2012

Stimulation
www.adi-analytics.com

OCTG

2013
Equipment
17

2014

2015

Water disposal

2016

Through 2014, completion capabilities have improved but

costs have not fallen as much as those for drilling
Completion Costs in the Eagle Ford
(USD Per Foot of Lateral Length)
$756
$653

$639

$660
$550

Stimulation
= -11%

2010

2011

2012

Stimulation
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OCTG

2013
Equipment
18

2014
Water disposal

Key messages

Unconventional cost reductions have come mainly from operational optimization

than the development and adoption of new technologies.

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19

Unconventional players have adopted numerous initiatives to

reduce costs across the value chain
1

Exploration

Drilling

Completions

Production

2D Seismic

Multi-well pads

Sequential / parallel fracs

Production facility optim.

Advanced core analysis

Walking rigs

Zipper fracs

Water management

3D Seismic

Own rig transportation

Own sand mines/frac flts.

Flare gas management

Reservoir modeling

Fit-for-purpose rigs

Own water systems

Emission reduction

Microseismic

Geosteering

Longer laterals

Refracturing

Well spacing

More stages

Well orientation

Proppant use optimization

Bi-fuel rigs

Bi-fuel frac fleets

Customized well designs

Microseismic

SIMOPS

Green completions

Well placement

Flowback analysis

Batch drilling

Engineered completions
Energized fracs

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20

 But most of the widely-practiced are primarily efforts to

optimize operations and not really new technologies
1

Exploration

Drilling

Completions

Production

2D Seismic

Multi-well pads

Sequential / parallel fracs

Production facility optim.

Advanced core analysis

Walking rigs

Zipper fracs

Water management

3D Seismic

Own rig transportation

Own sand mines/frac flts.

Flare gas management

Reservoir modeling

Fit-for-purpose rigs

Own water systems

Emission reduction

Microseismic

Geosteering

Longer laterals

Refracturing

Well spacing

More stages

Well orientation

Proppant use optimization

Bi-fuel rigs

Bi-fuel frac fleets

Customized well designs

Microseismic

SIMOPS

Green completions

Well placement

Flowback analysis

Batch drilling

Engineered completions
Energized fracs

www.adi-analytics.com

21

Going beyond optimization, unconventional oil and gas

operators have several pain points and innovation needs
Major Innovation Challenges
1 Ability to explore for sweet spots
Exploration

2 Improve predictive modeling capabilities

3 Develop tools for hydrocarbon characterization

4 Develop faster, cheaper, precise, and cleaner D&C technologies

Drilling &
Completions

5 Improve completions with better fractures and equipment

6 Increase hydrocarbon recovery or reduce shale gas well decline rates

7 Optimize water and emission footprint through new practices and technologies
Production

8 Reduce decline rates through EOR, in-fill drilling, refracs, and other tools
9 Develop technologies that allow for better integration with midstream assets

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22

How do we put the wells in the right place, with the right
orientation, and choose where to complete based on data?
Produce far too many
under-performing fractures

Current unconventional
best practices

60%

Limited exploration, if any

Find sweet spots

by trial and error

40%

Perforate the reservoir

every 50 or 100 feet

Stimulate stages with identical

fluid and proppant volumes
Low
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23

High

Energized fracs can compete with water only if the latters

lifecycle costs are fully included in completion costs
With Lifeycle Water Costs
(U.S. $ Million)

Fracture Treatment in Montney

(U.S. $ Million)

Slickwater
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Slickwater

N2 Foam
24

CO2 Foam

N2 Foam

Natural gas flaring is emerging as a key issue addressing

which will require new technologies at a smaller scale

Gas Production and Flaring

(Billion Cubic Feet Per Day)

Bakken Flaring Rates by Well

(Thousand Cubic Feet Per Day)
2,500

2,000

0.8 Sold

1,500

0.6
0.5

1,000

0.3

0.2
0.1 0.1 0.1 0.1 0.1 0.1 0.1

0.2 0.2

500

0.2

0.1 0.1 0.1

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.2

0.2

0.3 0.3

Flared

2000 2002 2004 2006 2008 2010 2012 2014

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25

200

400

600

800

1000

Key messages

Rocks matter more than you think First movers among North American
unconventional players are benefiting more from operational best practices.

Drilling rig productivity and multi-well pads have provided most of the cost
reductions in North American unconventionals.

Completion costs have not really fallen and could be fertile ground for new
technologies and innovation.

Unconventional cost reductions have come mainly from operational optimization

than the development and adoption of new technologies.

www.adi-analytics.com

26

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