As producers look for ways to optimize their projects, reduce costs and grow production, they are increasingly turning to development strategies that focus on scale. One of those emerging strategies is cube development in which multiple wells are drilled in multiple benches from a single well pad.
Encana was among the first to test cube development, and others like Devon, Concho Resources and QEP Resources have followed suit. Pioneer Natural Resources, Chevron and Exxon Mobil are reportedly transitioning as well.
One of the most notable cube-style developments is Encana’s RAB Davidson project in the Permian Basin. According to Encana, RAB Davidson is producing from 45 wells. In early 2017, RAB Davidson reached peak production with 17,000 bbl/d. Now Encana has drilled more than two dozen multiwell cube developments. Its latest is the 14-well HNC 248 Cube in the Permian Basin, which has reached a record production rate of 17,000 bbl/d after 60 days, according to Encana’s second-quarter 2019 investor report.
In a recent analysis of the economics of cube developments, Ryan Duman, principal analyst, Lower 48 upstream at Wood Mackenzie, said “well-executed” cube developments could increase present value by as much as 30% for a full section of Wolfcamp and Bone Spring drilling.
Duman noted that cube development won’t necessarily work for every company, however. The strategy comes with high upfront costs because each well needs to be drilled before they are put on production. Also, the longer delay before wells are put on production results in an extended period before returns can be realized.
“That said, they offer big benefits if executed to plan,” Duman said. “By our models, if an operator can drill each well 10% cheaper than they would via traditional row development, the cube has super economic metrics.”
Wood Mackenzie estimates that if operators save 10% on costs per well, cube development can improve net present value per section by more than 70% and increase capital efficiency by 15%.
“Total capex spend per section is less for cubes than row development because of the scale and speed benefits,” Duman said. “However, cubes concentrate the spend up front and decrease flexibility. In fact, if well spacing on a cube is wrong, cash fl ow can actually be impaired.”
For its RAB Davidson project, Encana spaced its well about 300 ft to 400 ft apart. The company’s latest cube development plans feature 500-ft well spacings. Encana reported on its website that its spacing and stacking design across multiple benches reduces parent/child well interactions.
However, not all cube developments have been successes. Concho’s 23-well Dominator project showed promising results early on after targeting the Wolfcamp, but the company revealed during its second-quarter 2019 investor report that the wells were spaced too close together and production did not meet expectations.
Cube development projects certainly come with their own risks. With upfront costs reportedly in the hundreds of millions of dollars, the economics price many operators out. But as larger operators test their own trials, the industry will be watching to see if cube development is the next evolutionary step the oil and gas industry takes.
The Scoop and Stack plays are still in the money but only with improved well spacing and effective management of frac-driven interactions.
Tullow, with partners Total and Africa Oil, is working toward a final investment decision (FID) by year-end and had hoped the water deal would be reached by mid-year, Tullow’s Kenya Managing Director Martin Mbogo said.
The London-listed firm had previously sold about two-thirds of the project to CNOOC and Total for $2.9 billion in transactions completed by 2012.