Author: Caitlan Capps
While the US continues to steadfastly retain its spot as the number one natural gas producer in the world, the Appalachian region specifically has seen astonishing and sustained growth in production rates since the summer of 2012. Historically, local production in the Northeast was absorbed locally and additional demand was satisfied with imported product from larger markets (Gulf Coast, Southeast, Midwest) via solidly established pipeline infrastructure. However as the Appalachian region, specifically the Marcellus and Utica, have continued to grow, the balance of supply and demand has dynamically shifted. While supply continues to increase, there has been a shift from basic displacement of imported product to an environment of surplus production – here’s the kicker, with nowhere to go.
Pipeline infrastructure naturally flows product from producing areas to market areas, which largely was from the Gulf Coast, Southeast or Midwest up to the Northeast. In an unexpected turnaround thanks to the booming shale recovery advancements, the Northeast can now be grouped as a full-scale producing area with its prior listed counterparts, with the need to transport its surplus supply to other markets and away from the self-saturated Northeast. While infrastructure struggles to catch up with this crescendo and logistic shift, E&P companies are faced with the immediate task of maintaining management targets and shareholder commitments in an environment of rapidly changing circumstances. This unique atmosphere forces the need for companies to align more than ever with Midstream to forecast and invest in immediate and future paths to market while maximizing the current capacity available and appropriating resources the best way possible.
Having the tools to first forecast and secondly optimize key industry targets like IRR or utilization capacity can make or break companies in a situation where increasingly high operating costs, restricted paths to market, and swiftly depressed or disappearing market premiums exist. Below are five aspects where 3esi-Enersight can be utilized to analyze decisions surrounding takeaway capacity while aligning resource allocation with midstream:
1. Measure Asset Takeaway:
What is the full value of my company’s asset? How much capital investment does it take to maximize EUR? How much production am I capable of producing and subsequently transporting? What is the financial impact of taking a product to one market versus another?
Within 3esi-Enersight’s Network tab, clients are able to answer these questions by modeling the flow of production from wellhead to a sales point via “decision points”, or influential and impactful stages in transportation that affect production and economic forecasts.
Various decision points clients use the network tab to model include: Central Gathering Facilities, Pipelines, Extraction Facilities, Compressors, Tanks, Trucks and Batteries, and of course Wells (Not only can wells be modeled with all major production stream forecasts, but individual well gas composition can be broken down and subsequent extraction percentages can be modeled at proceeding nodes.). All of these decision points have the ability to apply constraints with varying schedules and fluctuating rates, which is utilized to model and forecast real life “takeaway capacity” in the actual environment. Utilizing an asset’s complete network structure, users have the ability to measure an asset’s full takeaway potential – giving management targets for which to aim.
Figure 1: Asset Network “Decision Points”
2. Deploy Resources to Optimize Capacity:
Often times, planning and strategy teams pursue schedules and dispatch rigs to hit certain yearly production targets or fill “white gaps” in a schedule without aligning with midstream to determine how best to bring wells on production while minimizing capacity costs or avoiding paying overages. Below is an example of an absence of communication between scheduling and midstream. Rather than hitting a constraint and shutting in potential production, the scheduling of wells can be better paced to distribute wells’ initial production peaks so as to both maximize quick production and reduce the need to pay overages for capacity space.
Figure 2: BEFORE -Production Shut-In
Figure 3: Restricted Completion Schedule to Manage Capacity
Figure 4: AFTER – More Production, Aligned with Midstream
3. Evaluate Infrastructure Investment Options
When companies routinely run into capacity constraints, they must evaluate various options to retrieve the shut-in production and get it to market. Two obvious opportunities are to either buy more capacity in a pipeline or expand its storage space at a facility or by adding a tank or battery. Using 3esi-Enersight, companies can quickly see the impact on economics and production volumes by adding capacity to a facility.
In the examples shown here, a company invests $3 million of Facility Capital on a constrained pipeline to increase its flow potential.
Figure 5: BEFORE – Inadequate Pipeline Capacity
Figure 6: AFTER – Increased Capacity, Increased Production
With the click of a few buttons, 3esi-Enersight allows users to forecast potential capital investment to increase capacity at constrained facilities and their residual economics. In this way, midstream can model the ‘roll-up’ effect of multiple capital investments in a given asset as well as run what-if scenarios to determine the optimal combination of capacity increases, using indicators such as ROR, BTNPV or just basic comparisons of increased capital versus increased BOE.
Figure 7: Economic Summary Comparison Between Constrained Capacity and Increased Capacity Scenarios
4. Identify Unnecessary Fixed Capital Spending For Storage
Without realizing it, companies may be paying excessively for unused capacity in certain areas. Furthermore that unidentified, unused capacity could be the missing opportunity companies are looking for to get product to market. Being able to model “real-life” production with current, up to date capacity measurements allows companies to take a step back, understand where alternate flow opportunities lie or where they can reduce and or re-appropriate storage capital expenditure.
Below is an example of excess spending on surplus capacity storage that is going unutilized. Without adding any production output to a model but reducing the capital expenditures, this company can immediately improve their economics.
Figure 9: Misappropriated Facility Capital
5. Sensitivity to Environmental Changes
Using 3esi-Enersight’s Risk Scripting tool, companies can determine a baseline model for all what-if scenarios to compare against, and create as many other versions as the want (ex: High case, Low case). Determining “uncertainty bands” and testing different variables on the asset as a whole, companies are able to quickly see how sensitive their asset or area is to fluctuations in these variables.
Below is an example of a 20% uncertainty band, testing the asset’s sensitivity on Pricing, Production, Capital or OpCosts.
Figure 10: 3esi-Enersight’s Risk Scripting Tool
Using charting and reporting tools, like the Tornado Diagram seen here, companies are able to risk their asset, and mitigate their risk by planning accordingly.
Figure 11: Tornado Diagram
Overall, the environment in the Appalachian Region is both highlighting the need for companies to have cohesion and alignment between Planning and Midstream as well as forcing the consistent interaction between the two. Awareness of surplus capacity, inadequate capacity, the ability to measure capacity utilization, and visualizing potential for resource pacing improvements will allow companies to navigate the choppy waters of a reversal in production/market flow with limited infrastructure.
About the Author
Caitlan Capps is a Consultant with 3esi-Enersight Corporation operating out of Houston, US. Caitlan is an industrial engineer with an MBA. She brings to 3esi-Enersight over three years of experience in project management and has worked on multiple integration projects of varying size and complexity. She helps introduce best in class workflows for modeling production and economics in order to guide E&P companies meet management targets while maximizing their value.
3esi-Enersight Corporation provides planning expertise for the modern, complex oil and gas industry. 3esi-Enersight petroleum planning software supports the most comprehensive integrated planning workflow in the industry and helps upstream petroleum producers make competitive and cost-effective decisions at every stage of their business. Founded in 2003, 3esi-Enersight Corporation operates from offices in the United States, Canada, and Australia, and serves more than 50 oil and gas producers globally. Visit us at www.3esi-enersight.com.