This is an excerpt from the Ralph E. Davis Associates (RED) Weekly E&P Update Newsletter.

An article highlighted last week was published in the Society of Petroleum Engineers Journal of Petroleum Technology, titled “Does Physics Really Matter in Unconventionals?”. We see this question arise quite a bit, and while there isn’t a simple answer, our opinion is that it matters, but it may not be useful as one would hope, and here’s why.

Theoretically, predicting the future performance of a well could be done from “first principles” if one possesses enough accurate reservoir, pressure and fluid data. That is, using analytical methods, one could predict the production behavior of a well by applying fundamental flow and mass balance equations provided one could accurately characterize the reservoir geometry (including fractures, faults and flow barriers); distribution of porosity, permeability, fluid saturations; and could define the fluid behavior of all the fluids present. There may not be a purely analytical solution to the flow equations when there’s variation in reservoir properties and the flow geometry is complex, but a numerical solution is possible if the reservoir is fully understood.

Unconventional resources present a significant challenge for analytical and numerical methods because so little of the data, particularly related to flow geometry, is known with great enough detail. It’s one thing to predict flow behavior in a reservoir that’s homogenous, isotropic, contains a single hydrocarbon phase, and produces from identical, parallel, evenly-spaced fractures; but in the real world, reservoir properties vary, multiple phases are present, and the fracture geometry and conductivity are largely unknown. It’s the limitations of the data and our ability to accurately characterize the reservoir and flow geometry that force us to rely on empirical methods.

Of course, the most common empirical method for estimating the future performance of undrilled wells in unconventional (and some conventional) reservoirs is the creation of type well profiles (TWP) from appropriate analog wells. The production history of the analogs is often impacted by events that are not known to the evaluator, particularly when working with public production data. Things like fracture treatment problems, portions of the lateral outside of the target zone, choke practices, artificial lift changes, facilities issues/constraints and offset well interference all impact the production history of a well. As a result, in some settings, we see a significant deviation from ideal behavior and the fundamental physics may be violated. In reality, however, our observations are impacted by often unknown factors and the complexities of the reservoir and fracture geometry.

Occasionally, we see evaluators try to force their TWPs to match an ideal well behavior, and sometimes this results in forecasts that vary materially from historical performance. We believe it’s a better practice to be informed by the physics but rely more on the data. It reflects real-world performance and practices, and so long as the analog wells are good analogs, it should result in a TWP that provides a better prediction of future performance.

About the Author:

Steve Hendrickson is the president of Ralph E. Davis Associates, an Opportune LLP company. Hendrickson has over 30 years of professional leadership experience in the energy industry with a proven track record of adding value through acquisitions, development and operations. In addition, he possesses extensive knowledge of petroleum economics, energy finance, reserves reporting and data management, and has deep expertise in reservoir engineering, production engineering and technical evaluations. Hendrickson is a licensed professional engineer in the state of Texas and holds an M.S. in Finance from the University of Houston and a B.S. in Chemical Engineering from The University of Texas at Austin. He currently serves as a board member of the Society of Petroleum Evaluation Engineers and is a registered FINRA representative.