Smaller producers urged to look for multi-well pad cost savings

Canada’s smaller unconventional natural gas producers have been urged to trade some of their competitive instincts for “strategic alliances” to lower exploration and development costs while they wait in anticipation of demand for LNG export projects.

A new joint industry report said companies need to put aside some of their traditional roles to survive the current gas-price slump over at least the next three to four years.

The study concluded that while “project development and employing the multi-well concept” have been embraced by large producers, many smaller operators are still clinging to exploration based on one-well, one-location.

“This approach does not enable cost savings to be achieved and in many cases relies on a drilling window approach for services,” the study said, estimating its recommendations could reduce drilling costs by 25 percent and the cost of materials by 18 percent.

The proposals to improve wellbore and project economics put special emphasis on measures to bundle services and create alliances.

The 69-page report was co-authored by Mike Dawson, president of the Canadian Society for Unconventional Resources, Peter Howard, president of the Canadian Energy Research Institute, and Mark Salkeld, president of the Petroleum Services Association of Canada.

They concluded that where two exploration and production companies have invested in adjoining land and subsurface development properties, it should be possible for them to drill and complete individual wells from a multi-well pad, thus lowering a range of infrastructure costs, such as road and pad construction, transport of materials and equipment and pipeline tie-ins.

“A cooperative practice … has the potential for producers to leverage economies of scale,” the report said.

Competitive concerns an issue

“In light of current pure gas prices, with no significant indication of price recovery or stability in the foreseeable future, corporate strategic alliances should be considered” to take advantage of supply chain management processes, especially in more remote operating areas, the report said.

The study also urged steps to implement supply chain management to trim as much as 20 percent off a typical company’s total costs, while improving market penetration and customer service.

“Many junior companies, who may have a limited inventory of well prospects and a limited exploration budget, rely on acquiring their service providers in small windows of opportunities when equipment becomes available from larger projects,” the study said.

As a result, companies waiting for these narrow windows to drill and complete a single well cannot realize the cost savings of a multi-well program, especially if they are forced to drill in higher-cost winter months, the report said.

Dawson said the authors decided to concentrate on trying to help the gas sector survive over the next three to four years, until LNG projects come on stream, by seeking improved production rates, ultimate recoverable volumes and lower finding and development costs.

The study was produced for Productivity Alberta, a not-for-profit organization partly financed by the Alberta government to offer guidance to smaller, independent industrial companies.

—Gary Park