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Horizontal Oil and Gas Wells: The Engineering and Economic Nexus

John Lohrenz

Year: 1991
Volume: Volume 12
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-4
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Abstract:
Horizontal oil and gas well drilling is booming while, overall, development drilling is declining. The engineering parameters and how they affect the economics of horizontal drilling compared to vertical drilling are examined here. As a new applied technology, horizontal drilling can promise economic advantages over vertical drilling but with incremental risks that must be weighed carefully. In the long term, horizontal drilling will merge into the ever-growing inventory of technologies that create the economics that extend the lives of and yield more reserves from, oil and gas fields that would otherwise decline. The result is the persisting pattern of fields yielding more production than early estimates even as it remains impossible to count which particular new technology gave rise to so much more production.



Technology and the Exploratory Success Rate in the U.S. Offshore

Kevin F. Forbes and Ernest M. Zampelli

Year: 2000
Volume: Volume21
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No1-5
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Abstract:
Over the last 20 years, the offshore exploratory success rate has more than doubled for a group of large producers which includes Exxon, Shell, Mobil, and Texaco, according to the U.S. Energy Information Administration (EIA). It is tempting to conclude that this increase can be attributed to the many advances in seismic and drilling technologies that have occurred over the same period. However, such a conclusion may be premature given that much of the increase in the success rate occurred in the late 1970s and early 1980s, well before the major advancements in seismic technology. The conclusion may also be premature in that it ignores the relationship between price and the success rate. Increases in the price may positively (negatively) affect the success rate. Given this, and the decline in price over the past decade, one would expect the success rate to have declined (increased) in the absence of technological change. This paper develops an econometric model that attempts to disentangle and quantify the effects of the major factors hypothesized to affect the offshore exploratory success rate. The analysis relies on company level data from the EIA's Financial Reporting System over the period 1978 through 1995.



Petroleum Prospect Valuation: The Option to Drill Again

James L. Smith

Year: 2005
Volume: Volume 26
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-4
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Abstract:
We examine the value of an exploration prospect that is to be exploited via a series of possibly dependent trials. Failure on any particular trial is assumed to convey bad news, but also provides an option to try again. The pattern and strength of dependence among trials determines the value of this option, and therefore also influences the value of the underlying prospect. We describe the solution to this valuation problem, examine the behavior of the option premium, and characterize potential errors that are inherent in two ad hoc procedures that are often used to estimate prospect value. We demonstrate that the impact of dependence among trials is monotonic: each increase in the degree of dependence results in a further reduction in expected value of the prospect. We also characterize the particular pattern of dependence that is implied by a plausible model of exploratory risk.



The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata

Richard G. Newell and Brian C. Prest

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.rnew
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Abstract:
We analyze the price responsiveness of U.S. conventional and unconventional oil supply across three key stages of oil production: drilling, completion, and production. Drilling is the most important margin, with price elasticities of 1.3 and 1.6 for conventional and unconventional drilling respectively. Well productivity declines as prices rise, implying smaller net supply elasticities of about 1.1 and 1.2. Despite similar supply elasticities, the price response of unconventional supply is larger in terms of barrels because of much higher production per well (~10x initially). Oil supply simulations show a 13-fold larger supply response due to the shale revolution. The simulations suggest that a price rise from $50 to $80 per barrel induces incremental U.S. production of 0.6MM barrels per day in 6 months, 1.4MM in 1 year, 2.4MM in 2 years, and 4.2MM in 5 years. Nonetheless, the response takes much longer than the 30 to 90 days than typically associated with the role of "swing producer."



All the DUCs in a Row: Natural Gas Production in U.S.

Douglas Mugabe, Levan Elbakidze, and Tim Carr

Year: 2021
Volume: Volume 42
Number: Number 3
DOI: 10.5547/01956574.42.3.dmug
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Abstract:
Using data from seven shale gas regions in the United States, we examine natural gas production in terms of drilling rig activity and well completion rates. Our objective is to examine the determinants of well completion decisions in the U.S. natural gas production. We observe that in recent years, the explanatory power of drilling rig count has declined. On the other hand, the number of producing wells remains a significant factor for explaining the variation in gas production. We find that an increase in the number of drilled but uncompleted wells (DUCs) plays a significant role in natural gas supply. The number of DUCs depends on drilling rig activity and futures prices of oil and natural gas. Also, our results indicate that well completion decisions and the duration of DUC status depend on oil and gas prices, pipeline capacity, producing well type and well depth.





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