New technology, high decline rates have Canada’s service sector flying skyward

New technology, high decline rates have Canada’s service sector flying skyward by Oil and Gas Inquirer, June 2011
Extended-reach horizontal wells have become the status quo in accessing tight resources across the Western Canadian Sedimentary Basin, attendees at PSAC’s mid-year forecast were told in April. “We’re forecasting that horizontal wells will account for 44 per cent of all wells by the end of 2011. That’s triple the 2007 level of 14 per cent,” explained PSAC president Mark Salkeld. … Costs have climbed to 54 per cent of total well costs compared to 17 per cent in 2000. … “Reducing the number of frac crew personnel present on a well pad by half is a realistic goal. That’s an important consideration in terms of both cost and the labour shortage that’s already squeezing the industry,” … As resource plays across western Canada mature, many analysts are predicting what looks like high decline rates at some plays will further drive service and supply activity. Earlier this year, Peters & Co. Limited reported that five multi-frac horizontal plays showed average first-year decline rates of 72 per cent, with the median first-year decline rate on 10 oil resource plays at 60 per cent. The median first-year decline rate on horizontal wells in nine gas resource plays was 75 per cent-15 percentage points higher than the oil plays. The decline rates are important, Peters & Co. noted, because companies with higher proportional exposure to such plays tend to have high corporate decline rates, which Peters warned will often lead to increasing maintenance capital requirements to maintain production. An example of this is the Bakken tight oil play in southeastern Saskatchewan. According to Saskatchewan government figures, horizontal Bakken wells have an average 74 per cent decline rate during their first year of production. On average, they decline by 24 per cent in the second year and 22 per cent in the third year. Peters & Co. says what these decline rates mean is companies active in the play need to be continually drilling and completing wells just to stay in place production-wise.