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Permalink Reply by Skip Peel - Mineral Consultant yesterday

In a discussion with a friend at the Office of Conservation I discovered something that surprised me.  The 330' No Perf zones we have touched on are not regulations of the DNR/OOC.  It seems they are industry standard operating procedures that were common in the era of conventional E&P and have been carried over to the horizontal drilling era of unconventional E&P.  In that earlier drilling era I feel sure the reason was to avoid mineral trespass - drainage outside the area leased or unitized.  Ryan, you seem to infer that frac cylinders do not propagate much north and south but horizontally east to west in these north/south axis laterals.  Would I be correct in assuming that?

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Permalink Reply by Ryan Howrish yesterday

That is my opinion, yes.  In the Haynesville and Bossier, with wells drilled in a N-S / S-N azimuth, fractures predominately grow perpendicular to the wellbore and vertically.

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Permalink Reply by Skip Peel - Mineral Consultant yesterday

I thought that was your opinion.  So, do you know why HA operators not drilling up to or very close to those north and south unit boundaries in H wells? Seems a waste of gas.

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Permalink Reply by Ryan Howrish 17 hours ago

To the best of my knowledge, it is a regulatory requirement that no perforation can be within 330ft of any unit boundary unless there is approval for cross-unit laterals.  In addition to Statewide Order 29-E, many permits I looked at clearly state that no perforation can be within 330ft of any unit boundary, with no distinction between perforations measured perpendicular or parallel with the wellbore.  The image below is a screenshot of three permits approved in the last three years that contain the provision of no perforation within 330ft of a unit boundary. 

Perhaps these can be challenged and it will take someone proposing the first and last take points to be within ~150ft of a unit boundary perpendicular to the wellbore and presenting a technical case supporting that position.

There are also individual Haynesville orders, such as 917-L, that clearly state that no perforation can be within 330ft of an existing unit line.

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Permalink Reply by Skip Peel - Mineral Consultant 16 hours ago

Thanks, Ryan.  I think that is a good place to begin a discussion of what change in the regulations might open up all that un-stimulated rock to production and monetization for mineral owners, the state and HA operators.  I will reach out to some of my contacts to see if the state would have any objection.  Do you think the HA operators would be supportive of that effort?

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Permalink Reply by Skip Peel - Mineral Consultant 15 hours ago

Ryan, do you think that the operators are not concerned about the 330' setback from east and west unit boundaries because they are already stimulating and producing that gas?  With the more intensive stimulation designs, is there any advantage in locating a lateral closer to those boundaries than 330'?

The recent approval of "exceptional locations" for the EXCO HC wells in close proximity to the existing, old H wells may be a means to go back and stimulate rock that didn't produce originally.

EXCO%20EXCEPTIONAL%20LOCATIONS.pdf

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Permalink Reply by Ryan Howrish 14 hours ago

I don't think these particular wells have anything to do with concern about the 330ft offset.  I assume Exco is fully developing the Haynesville and Mid-Bossier intervals.  I will be curious to see a gunbarrel view of the development once all of the data is public and analyzed.

If they are landing new wells in the same interval, even if the landing point is +- 100ft, I think they are going to be very disappointed with the productivity of the new wells.

Permalink Reply by Ryan Howrish 13 hours ago

I've been involved in and analyzed the performance of several down-spacing tests in every major unconventional gas basin in the US. If Exco truly is planning to drill a second well between two wells originally drilled at 660ft spacing that have produced between 1.0 and 1.9 bcf/1000ft, they will be very disappointed with the results, and the wells will be an economic failure.

From a mineral owner's perspective, with no exposure to capital, any additional gas is a net positive. They are immune to the development economics.

There is a producing Mid-Bossier well in Sections 26&23 already.  If you look at the spacing of the red wells on the PDF you provided, the proposed new wells are spaced much more like most Mid-Bossier development.

I understand the operator economics of downspaced wells in the same interval at 330ft and I am confident that is not Exco's plan in these 2 sections. 

Permalink Reply by Ryan Howrish 14 hours ago

I believe operators would generally be supportive, but the way the regulations are written will be key. There will likely be concerns about potential litigation from mineral owners, and I don’t think operators will be eager to take the first step without some confidence that it won’t lead to lengthy and costly legal challenges. Additionally, determining the exact location or source of production is quite difficult—after stimulation, the reservoirs become complex that it’s far from an exact science.

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Permalink Reply by Skip Peel - Mineral Consultant 14 hours ago

My comment about the EXCO exceptional location wells is about stimulating and producing the gas that was not recovered by the original H wells, not about the 330' no perf zones.  The TVD or landing zones will not be known until we see the "as drilled" final reports.  I think that EXCO would not be drilling these wells to test the Mid-Bossier.  I think they are designed to access gas not recovered in the original Haynesville wells.

I agree that determining the source of the gas produced is difficult that's why I mentioned the arbitrary allocation that the state has approved and is used to pay mineral interests based on linear feet of perforated lateral.  Yes, mineral owner acceptance would need to be solved so the industry would not be subject to litigation claiming mineral trespass.  I think the way to approach that is legislation.  Legislators and indeed all elected officials, local and state, would be swayed by the economics of the argument.  If a sufficient number of major mineral owners were to join a lobbying effort, I think the legislators in the Haynesville Shale parishes would be willing to bring a bill.  And I doubt there would be any objection by legislators representing the rest of the state.

Permalink Reply by Skip Peel - Mineral Consultant 11 hours ago

Thanks, Ryan.  I'm going to reply here to reset the discussion.  I know that operators use trace elements in frack stages in order to determine which stages/perf clusters are contributing to production flow back and which are not.  Is that something that might help with allocating production to specific units across east/west boundaries?

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Permalink Reply by Ryan Howrish 9 hours ago

Yes, there are a variety of tracers that can be used for different applications, specifically the one you mentioned.  Depending on who you talk to (tracer salesperson or the technical team at an operating company), you will get a different answer on whether tracers provide qualitative (is there flow from a certain stage) or quantitative (a measure of how much of the total flow is coming from a certain stage). 

When I worked in the Reservoir Strategies group at NCS Multistage, we bought a tracer company, so I am fairly familiar with them. However, I would never use the results of a tracer test to allocate production to different units. There is far too much uncertainty in the analysis. Tracer tests can be very useful at a macro level, but they don't provide the precision or certainty needed at a micro level.

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