Thursday, May 28, 2009

EnCana: Geology, Well Ops and Type Curves

In its recent investors call, EnCana got into a fair amount of detail about the geology of the Haynesville Shale. The company has numerous positions along the Gulf Coast Jurassic Trend, which includes the Deep Bossier and Haynesville Shales (but not the Barnett Shale) and stretches into Mississippi.

EnCana loves the Haynesville Play because of its high porosity, which leads to very high “gas in place” figures. Like the Deep Bossier Shale, the Haynesville is a highly pressurized, high temperature environment, which requires a greater degree of care and necessitates higher drilling costs. In the presentation, they included some log data and a core sample, below.

As with other companies, the Haynesville learning curve has been steep, but as EnCana has gained experience in the play, it has been able to perfect its methods as well as reduce costs and time. Perhaps the biggest advance in understanding EnCana has made is that a higher amount of proppant in the various frac stages is highly correlated to better results. As EnCana learns more, the typical well now has more frac stages, longer laterals and larger amounts of proppant.

Climbing the learning curve and putting the lessons learned to work is part of EnCana’s Gas Factory strategy. 1) Get to know the geology, 2) engineer the process to near perfection and 3) replicate the successful drilling operations again and again – that’s the Gas Factory approach. You’ll see the same strategy from other companies like Petrohawk and Chesapeake, but they don’t seem to use the same unfortunate “gas factory” branding.
EnCana has drilled 16 horizontal wells and over that period it has decreased well costs by 30% to about $9 million per well, increased IPs, Decreased cycle time from 60 days to 50 with the most recent wells in the 40's.

The next big challenge for EnCana is trying to nail down the type curve and estimated ultimate recoveries (EUR) to achieve standardization across the zone. EnCana safely believes that most of its acreage in the Haynesville Shale will have a 6 EUR type curve, but a type curve as high as 9 EUR is possible. They are seeing that the wells with the higher initial production (IP) figures tend to be the ones with the higher EURs. Right now, most of EnCana’s wells are choked back for technical (and economic) reasons, so it may be hard to estimate the appropriate curve. This restricted situation might have a bright side: EnCana’s engineers believe that by being more gentile in the beginning might lead to higher recovery numbers in the end. Remember the story of the tortoise and the hare…

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