Shell Rocky Mountain heavily into unconventional natural gas in Pinedale

Implications: Drilling Editor Nina M. Rach reported in the August 18 issue of the Oil & Gas Journal that Shell Rocky Mountain Production Company is optimizing Pinedale field wells. Production will be increased and surface disturbances will be reduced. Shell will drill more than 90 wells this year. The 35 mile long Pinedale anticline produces from shales, siltstones and sandstones. The first well, drilled in 1939, had poor permeability and no pipeline connection. Since the 1990s, with multistage fracturing, Pinedale has become the second-largest natural gas field in the U.S. Shell, third-largest leaseholder after Ultra Petroleum and Questar Corporation has drilled more than 280 wells and performed 2,800 fracture jobs. Total investment exceeds $1.5 billion. Well design has evolved with directional drilling and slimmer well bores. Shell focuses on wells of 7,000 to 14,000 feet. Each multistage well has 15 fractures stages filled with 105,000 lb of proppant. Inflationary cost increases run 20% annually.

Analysis:  In this well thought-out, three page presentation, Drilling Editor Rach describes the evolution of Shell’s design and completion technology, always aimed at lower costs and care for the environment. In six years of operations, everything has been streamlined. Unfortunately 20% annual inflation erodes profit even as the company reduces cost further. But the reserves are large and with high gas prices, the company will definitely prosper. With many, many pay sands, the opportunity for continued drilling is substantial. The main uncertainty is variation in natural gas prices in the future. The company’s margins are low and are squeezed even further by higher prices for equipment, services and labor. Essentially, this is the problem faced by all developers of shale gas reservoirs. If costs can be contained, projects of this type can go on indefinitely. Once operating costs equal sales, the game is over.