Exploration

10,000 Kicks – The Practice of Continuous Improvement in the STACK

Continuous improvement

Ok.  I’ll admit I have never been a big Bruce Lee fan, but, while gathering inspiration for this update on STACK pilot well programs, I discovered a commonality between the famed martial arts expert and E & P companies developing the STACK. What I found is that most everyone participating in early-stage STACK development is keenly focused on learning and Continuous Improvement.

They’re gathering and analyzing incomprehensible amounts of data, field intelligence, and work experience to drill, complete, and produce more high-quality wells with greater efficiencies, and at higher margins. During this process, knowledge and skills gained through working the STACK are quickly internalized and used to inform current projects and shape future development plans.  In short, these companies are involved in a long-term process of ensuring their procedures, methods, and practices are as effective, efficient, and accurate as possible, through a process of continuous improvement.

Enter Bruce Lee.  Well-known as a martial arts expert, philosopher, and actor, Bruce Lee was also a leader in the personal development field and a real, continuous learner.  Therein lies the connection with STACK development.  So, in this article, I’d like to play around with this idea a bit more and explore this commonality further.

“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” – Bruce Lee

I think the quote above attributed to Bruce Lee captures the essence of pilot well programs and the current state of development in Oklahoma’s STACK play.  Horizontal drilling programs in STACK formations, especially the early ones, are not inherently destined to be successful.  This may not seem correct when headline-grabbing IP rates and announcements of blockbuster well results are usually at the forefront of industry news.

The truth is that successful, large-scale development (and production) of oil and gas wells don’t just happen when an energy company moves on to an optimal drilling location.  Not by a long shot.  It’s the result of dedicated focus, intensive data gathering, knowledge sharing, and lots of practice.  And, so it is with the STACK pilot well programs we’ve followed for over the past 3 years.  Leading companies in the Play like Newfield, Continental, Devon, Marathon, Cimarex, and Alta Mesa have all invested heavily in proving up the potential of their acreage holdings in the area.  Despite their differing pilot program strategies, each company has planned and drilled numerous test wells with the goal of optimizing methods, materials, and, of course, production.

All of this with the goal of eventual full-scale development and operations in their respective areas. Companies are learning, practicing, and perfecting their approach toward the goal of replicable success throughout the Play.  Their collective dedicated mindset of continuous improvement, i.e., their “10,000 kicks”, puts the odds for success in their favor- but not always.

Why Do Companies Undertake Pilot Well Projects?

Companies perform pilot well programs to make determinations about their acreage, its relationship to the best part of the play, and to maximize its full production potential.  Depending on its purpose, a pilot may contain a single well or groups of wells targeting the same (or different) formations.

Ultimately, an operator will use the knowledge gained through pilot programs to determine how their remaining acreage should be optimally developed.  Companies often participate in another operator’s pilot well(s) to increase their understanding of a play and obtain additional operational intelligence.  

What are operators studying through their pilot well programs?  Here are a few examples:

  • formations and associated thicknesses (rock properties, bottom-hole pressures, volumetric estimates, natural fracture networks)
  • completion formulas (proppant density, treating pressures, stage spacing, cluster spacing, slick water versus gel frac)
  • appropriate well spacing (density)
  • communication (interference) between wells during stimulation
  • lateral lengths (1-mile, 1.5-mile, 2-mile)

Regardless of purpose, it’s essential to remember pilot wells are just that…experimental projects, learning experiences.  It’s easy to get caught up in initial production rates, company and investor hype, etc. but, bear in mind that pilot wells probably won’t be significant producers in the long run.

They may, however, turn out to be significant producers of something higher in value – information. Ultimately, the valuable experience and data generated through STACK pilot projects is the feedstock of continuous improvement in well planning, drilling, and completing wells throughout the Play.

“A goal is not always meant to be reached, it often serves simply as something to aim at.” – Bruce Lee

Devon Energy’s Showboat Learning Experience

Devon Energy’s Showboat project in the STACK speaks to the value of practical experience, even when the outcome is less than positive.  The company’s third quarter 2018 Investor call offered some key insights into a recent change in development strategy based on the results of one of its premier pilot well projects, Showboat.  The parent Showboat 1AH was drilled and completed in the summer of 2015 and initially produced 1,750 BOE per day, 75% of which was oil.  The well’s 1-year cumulative production was 550 MBOE.

Devon’s original plan for infill development of Showboat called for a 12-well project producing from three Meramec intervals. By the 3rd quarter of 2017 Devon had made significant changes to this plan expanding the number of wells to 24 wells across 2 drilling units. The updated plan also called for co-developing 4 landing zones in the Meramec and Woodford formations.  In the highest density unit, spacing would be 13 wells (6 wells in both the upper and lower Meramec and 1 appraisal well in the Woodford assessing co-development potential with the Meramec).

Admittedly, Devon’s development approach with Showboat was aggressive.  At one time, Devon projected that as many as 20-30 wells per drilling unit could have been possible with co-development of Meramec and Woodford formations as part of the Showboat project.  While many of their peers were testing significantly lower densities in their multi-formation developments, Devon preferred to test the upper limits of spacing first, then pull back if needed.  In their words, they chose to “learn early” rather than slower incremental learning of limitations on spacing.  The graphic below is from Devon’s Q4 2017 Investor Presentation and depicts Devon’s Showboat plan at that time.

After several months online, results from the Showboat project (now consisting of 12 wells across 2 drilling units) were dismal and the company confirmed the wells had been spaced too densely.  There was interference between wells in the upper and lower Meramec intervals, and Industrial production figures were showing nearly a 50% decrease in the parent well’s oil production and a 30% decline in its gas production over the past 24 months.

During its most recent Investor Call, Wade Hutchings, Devon’s Senior Vice President of Exploration and Production confirmed the cause was interference between wells in the upper and lower portions of the Meramec formation observed during fracing and production phases.  Further development of Showboat wells seems now uncertain.

Despite less than optimal production, Showboat wasn’t entirely without success.  From the drilling schedule and cost perspectives, the wells exceeded Devon’s expectations.  Additionally, the wells contributed to the company’s overall knowledge base of their STACK position while providing valuable feedback for achieving time and cost efficiencies for future projects.  Perhaps even more importantly, the Showboat caused Devon to adjust its spacing strategy for future projects in the same portion of the Play.

In all, Devon considers its Showboat pilot project a valuable learning experience that will reshape their strategy for future well spacing.  Here’s a sample of what they discovered: 

  1. Performance differences between the upper and lower Meramec across their acreage.  – Nearly 50% of Showboat wells had their landing zones in the upper Meramec, which turned out to be about 25% more productive than the lower Meramec.  According to Devon, this trend reverses as one moves south and west of Showboat into the STACK core.
  2. Wells drilled close to the parent well underperformed in upper and lower Meramec intervals when compared with wells drilled further away from the parent.  The underperformance was noted in initial production as well as decline levels.
  3. Vertical connectivity exists between Meramec landing zones in this area as opposed to elsewhere in the STACK.

With the new knowledge gained from the Showboat wells, Devon was a bit more “light-handed” with the completions on their next 2 pilots, the Bernhardt and Horsefly wells where they observed similar communication between Upper and Lower Meramec intervals.  The 2 wells achieved their first production in August 2018 and were flowing back as of Devon’s Q3 Investor Presentation.  Production data in the coming months will provide valuable feedback on the success of Devon’s strategy pivot.

 “Absorb what is useful, discard what is not, add what is uniquely your own.” – Bruce Lee

Lessons learned by leading STACK Developers

Since the onset of STACK development, companies have been studying the Play’s geology and how to maximize its potential for oil and gas production through pilot and infill drilling.  Through collaboration, data sharing, experimentation, and experience, companies are continuously adding to their knowledge bases and refining their individual approaches for optimal development of their acreage.

To give you a sense of what some of the key learnings in the STACK have been, I sampled 1-2 years of public information from the leading companies in the Play.  Undoubtedly, companies have internalized much more than they’re willing to expose, so the map below is a general overview of what I found.  Bear in mind, that these learnings are directly related to pilot projects objectives, so, in that sense, they could all be considered successes.

Continuous improvement

Learning Over the Long Haul and Knowledge Application Through Continual Practice

For each operator, every well drilled is a learning opportunity ultimately contributing to an extensive “library” of information and experience.  One of the earliest entrants into the STACK, Alta Mesa, is still learning and adapting their approach from the 300 or so wells they’ve drilled since 2012.  After five years of drilling and producing delineation wells, only now does the company consider itself prepared for a transition to multi-well pad development of their Kingfisher County acreage.

You can observe the application of their learnings clearly in the following graphics from Alta Mesa’s Q1 and Q2 2018 Earnings presentations.  During the past 5 years, Alta Mesa has steadily increased the number of wells spud each year while drastically decreasing the number of days between spud and rig release.  On average, today, the company drills a well in 1/3 the time that it did 5 years ago.

Two Words – Continuous Improvement

“There is no such thing as maturity. There is instead an ever-evolving process of maturing.” – Bruce Lee

If I were to describe the ethos of companies currently testing and developing in the STACK, I would need only two words – Continuous Improvement.  Each drilled well, regardless of its outcome and productivity, contributes to the larger body of knowledge of STACK geology, development, and completion methods.   To find success, STACK operators will have no choice but to learn, experiment, adapt and iterate constantly.  In short, they’ll have to perform their 10,000 kicks.

You can always find me at jparker@tellusgeospatial.com.

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