American Oil and Gas Reporter - June 2015 - 71

SpecialReport: Artificial Lift Technology

Right Approach Boosts Margins, EURs
ADDISON, TX.-The dramatic shift in
oil prices over the past year is a reminder
of how quickly the commodity price environment and general well economics
can change. Companies that can figure
out how to drill economic wells at $60,
$50 or even $45 oil will be better-positioned
to weather the industry's cycles and grow
efficiently when prices recover.
Fortunately, with the right geology,
technology and people, it is possible to
prosper even at modest prices. To illustrate
the point, Endurance Resources is running
two rigs targeting the Avalon, Bone
Spring and Wolfcamp formations on its
22,000-acre position in Lea County, N.M.
If prices hold steady around $60, we may
add a third rig later this year.
In early April, Endurance was operating
one rig. We have been able to add a
second largely because we recognize a
truth that applies in any price environment,
but becomes critical as well economics
tighten: 90 percent of the opportunities
to optimize a well's production occur
before it is drilled. It is then that operators
have the best opportunity to maximize
reservoir contact and select artificial lift
systems for the life of the well.
At the planning stage, operators have
the chance to ensure a well is successful
and maximize their well economics. In
particular, they should:
* Understand local stress fields so
they can orient the well in the direction
that will maximize production;
* Design a completion that optimizes
reservoir contact and provides the conductivity necessary for production to flow
through the relatively narrow holes in
the tubing;
* Select an artificial lift system that
balances production and cost, and make
sure the pipe program provides enough
space for an electric submersible pump,
if it is the best choice; and
* Build production and processing
infrastructure ahead of the well to minimize initial lease operating expenses.
By keeping these factors in mind as
we plan wells, Endurance has significantly
reduced the capital expenditures and lease
operating expenses (LOEs). At the same
time, we have achieved a 25 percent increase in estimated ultimate recoveries,
compared with direct offsets.

EUR's Importance
Endurance emphasizes increasing ultimate recoveries over obtaining capital
and operating expense savings because
EURs play the biggest role in determining
a well's rate of return.
Consider a well with an EUR of 500
million barrels of oil equivalent. Assuming the well costs $6.15 million to
drill and has LOEs typical for Endurance's area, it would provide a rate
of return around 13 percent at $45 oil.
As shown in Figure 1, reducing LOEs
by 20 percent would only increase the
ROR by 2 or 3 percent.
Capital cost reductions would have a
much greater effect. A 20 percent reduction
would increase ROR around 10 percent,
and even a more obtainable 10 percent
reduction would increase ROR by 4-5
percent.
A 10 percent increase in ROR is impressive, but the biggest gains come from
boosting EURs. Bump the well's EUR
to 625 million boe and the ROR will
jump from 13 to 25 percent. Combine
that with 10 percent decreases in capital
costs and LOEs, and the ROR will exceed
30 percent.
Of course, getting returns that high at
current oil prices takes hard work. Fortunately, it is work worth doing. In the
short term, it is allowing Endurance to
continue to grow while keeping its employees and business partners busy. In
the long term, it is giving us a suite of

tools we can use to provide even greater
returns as prices recover.

Maximizing Recoveries
Because increasing ultimate recoveries
has such a large impact on well economics,
maximizing EURs is vital. Several factors
contribute to that effort, including well
orientation, proppant deployment, and
artificial lift selection.
Well orientation illustrates the degree
to which even simple decisions can affect
EURs. In areas where horizontal stresses
differ from one direction to another, orientation has a dramatic effect on completion
effectiveness. In a strike slip or normal
faulting environment, fractures propagate
in the direction of the maximum stress, so
if a well's lateral goes in that direction,
the fractures will turn and run parallel to
the wellbore a short distance after they
are created, forming a wide, shallow and
highly-connected fracture network.
While such a network still improves
production, the completion will be far
more effective if the well's lateral parallels
the direction of minimum horizontal stress
(SHmin). With the low-stress areas perpendicular to the wellbore, the completion
will create transverse fractures that penetrate
deep into the formation, maximizing reservoir contact, and therefore, recovery.
A study of wells targeting the second
Bone Spring on or near Endurance's
acreage shows how big the difference
between orientations can be. The 10 wells

FIGURE 1
LOE and Capital Cost's Effect on Well ROR ($45 Oil Price)
45.00

40.00

Base Capital of $6.154 MM

4,000 ft lateral
3.7 MM# Ceramic Proppant
43 Stages

LOE - 20%
LOE - 10%
Base LOE
LOE + 10%
LOE + 20%

35.00

Base LOE model:
78,000 for 1 month
66,700 for 1 month
9,600 for 21 months
20,300 for 1 month
5,575 for 60 months
4,100 until ECL
Plus $1/barrel variable cost
$6.37/barrel for 500 MBOE
$5.30/barrel for 625 MBOE
Does not include COOP

30.00
Rate of Return

By Don Ritter

625 MBOE

25.00

20.00

LOE - 20%
LOE - 10%
Base LOE
LOE + 10%
LOE + 20%

500 MBOE

15.00

10.00

5.00
-20%

-10%

0%
Capital Cost Variance

10%

20%

JUNE 2015 71
American Oil and Gas Reporter - June 2015

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