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Chapter 11
Introduction
To identify, select, and design the
optimum stimulation treatment for a
well under a given set of conditions,
engineers must perform a detailed
economic analysis of all available
options. This analysis generally
consists of three steps:
identifying the stimulation
treatment options and estimating the costs for each treatment
option
predicting the incremental
hydrocarbon production rates
and ultimate recoveries
attributable to each stimulation
treatment option and estimating
the resulting revenue streams
selecting the optimum stimulation treatment where the net
income (revenues minus costs)
maximizes economic returns
The optimum stimulation treatment is
based on the net increase in value that
the treatment is expected to achieve as
compared to the unstimulated wells
production. If the difference between
the additional production from the
treatment and the treatment costs
meets or exceeds company-specific
economic criteria, the stimulation
treatment is warranted. The stimulation treatment that meets or exceeds
the economic and production goal by
the greatest amount will be the
optimum treatment.

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To aid in the analysis, engineers


should compile a stimulation database before undertaking the stimulation program. This database should
include production data for horizontal wells in the area of interest along
with a reservoir model, vertical well
production histories, and the history
and results of past stimulation
treatments. This database will help
users identify and design the optimum stimulation treatment and
determine the production function
and ultimate recovery.

Economic
Optimization
of Stimulation
Treatments

When deciding whether or not to


stimulate a well, engineers should
consider that the stimulation of a well
will increase the production rate,
thereby accelerating production. In
high-permeability reservoirs, the
impact on ultimate recovery is small.
In lower-permeability formations,
stimulation treatments are likely to
increase the cumulative recovery over
the wells economic life.1
When optimizing the stimulation
treatment, engineers generally are not
concerned with justifying the well
itself. Therefore, the various stimulation options should not be burdened
with the horizontal or deviated well
cost or any drilling and completionrelated expenses unless such expenses are directly related to or
required for the success of the
stimulation treatment. For example,
completion-related costs must be
considered when operators are
deciding whether to complete a well
openhole or unfractured, or to

Economic Optimization of Stimulation Treatments

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Stimulation of Horizontal and Multilateral Wells

fracture-stimulate the well with multiple, transverse


fractures. Since multiple, transverse fractures require
positive isolation between individual fracture stages, the
well would have to be cased and cemented. The cost to
case and cement the well and the associated additional
rig time must be included in the stimulation costs. A
similar situation may occur if increased casing weight is
required to stimulate the well.
If the stimulation treatment is considered and optimized
apart from the wells completion design, the costs for the
various stimulation treatment options should include
only the actual treatment costs. No drilling, cementing,
or other costs should be included.

Economic Analysis Concepts


Horizontal wells are stimulated for three primary
reasons:
maximizing the economics of recoverable
reserves
sustaining a high production rate for as long as
possible so that the ultimate recovery is optimized
maximizing the ultimate recovery of hydrocarbons
The selection and justification of the optimum stimulation treatment are based primarily on economics. The
treatment ultimately chosen will maximize economic
returns. The most commonly used measure for assessing
the economic value of a treatment option is its net
present value (NPV).1-4 The optimum treatment maximizes NPV and satisfies any additional companyspecific criteria. Additional criteria can include a
maximum payout period, a minimum return on investment (ROI), a minimum rate of return (ROR), cashflow
requirements, required production rates, and ultimate
recovery issues.
These economic analysis terms are defined as follows.1
NPV is the difference between the present value
of all receipts and all expenses, both current and
future, that can be attributed to the stimulation
treatment. It is the sum of all future cash flows
discounted to some specific point in time at a
stated discount or interest rate. It is the value
today of some amount in the future, given an
investment opportunity at a specific discount rate.

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Economic Optimization of Stimulation Treatments

The payout period is the time required for the


present value of the net well revenues to equal the
sum of the treatment costs and the present value
of all future treatment-related expenses.
ROI is the ratio of cumulative net cashflow over
the project life to the maximum cash outlay. The
discounted rate of return on investment (DROI) is
the ratio of the NPV of the cumulative net cash
flow over the project life to the present value of
the cost, expenses, and investments attributable to
the stimulation treatment.
ROR is the discount rate or compounded interest
rate used in the net value calculations. ROR is
equal to the constant effective annual percentage of
earnings on the unrecovered capital remaining in a
project. It is also referred to as the marginal
efficiency of capital, the internal rate of return, the
true yield, and the discounted cashflow method.

NPV Calculation
When evaluating a horizontal well stimulation program
on the basis of economics, we must maximize the ROI or
minimize the total cost for the project. Since revenues
from the well will be realized over time, they must be
discounted to time zero, which is usually the time when
the job is actually executed. With the following equation,
the net present value (NPV) for a specific treatment is
calculated from the treatment and treatment-related costs
as well as the present value of anticipated revenues and
future expenses attributed to the treatment:
N

NPV =
n =1

pn Rn
C
( 1 + i )n
(11.1)

where
N = total number of periods considered
pn = probability of realizing net revenues Rn in
period n
Rn = net revenues for period n attributed to the
treatment
i = discount or interest rate per period
C = total treatment and treatment-related expenses
incurred at time 0

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Net Revenues
The net revenues for any period resulting from the
stimulation treatment are the difference between the
revenues from the sale of the additional production
resulting from the treatment and any additional expenses
associated with the treatment (such as additional disposal
or operating costs). In situations where future production
revenues are uncertain, net revenues for the period should
be multiplied by pn, a factor less than unity that represents
the probability of obtaining the net revenue in that period.
Net revenues are defined by

Rn = net revenues realized in period n


= Pn Vn En
(11.2)
where
Pn = price per barrel of hydrocarbon equivalent
sold in period n
DVn = difference between stimulated and
unstimulated hydrocarbon equivalent production volume for period n
DEn = difference between stimulated and
unstimulated well operating costs for period n

Treatment Costs
The treatment and treatment-related costs (C) are
associated with the stimulation treatment being evaluated.
They include both fixed and variable costs. Examples of
fixed costs are location preparation, rig costs, tubular
rentals, perforating, logging, testing, mobilization
charges, basic equipment charges, special equipment
charges, technical support, and some transportation
charges. Variable costs include the cost of the stimulation
fluid, additives, proppant (in hydraulic fracturing treatments), and chemicals as well as pumping charges, tank
rentals, disposal charges, and some transportation and
hauling charges.
Increasing treatment volumes will usually result in
increased costs and production. The added cost of
increasing the treatment size has to be justified by the
increase in expected future revenues, and it has to satisfy
applicable economic criteria. In treatments where fixed
costs are much greater than variable costs, the greatest
return will be realized by the treatment that maximizes
production. In treatments where variable costs signifi-

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cantly exceed the fixed costs, the optimum treatment will


yield production rates somewhat lower than the possible
maximum rate.
In some cases, economics may not be highly sensitive to
treatment design parameters. For example, a large part of
the treatment costs are fixed for a relatively small
treatment. In other cases, economics can be highly
dependent on both treatment design and formation
parameters. Under these conditions, a large number of
significant factors must be analyzed.
Once the NPVs for all treatment options and possible
treatment variations have been calculated, the engineer
can then select the treatment that maximizes the NPV. A
detailed discussion of how to optimize hydraulic fracture
stimulation treatments can be found in Reference 1. The
methods presented there can be readily extended to other
types of stimulation treatments.

Treatment Optimization Procedure


By using the following step-by-step procedure,2 engineers can optimize treatments.
1. Calculate the unstimulated production function.
2. Select the appropriate stimulation treatment.
3. Select the candidate fluid systems that apply to the
formation being stimulated.
If the well will be acid-stimulated, perform the
following:
a. Specify the volume of acid per foot of
formation and calculate the treatment cost for
the option being considered.
b. Estimate the depth of damage removal.
c. Estimate the expected production rate and
NPV of the expected production increase.
d. Repeat Steps a through c for several different
acid volume scenarios.
If the well will be fracture-stimulated, perform
the following:
a. Select a hydraulic fracture geometry model
and a maximum proppant concentration
based on formation characteristics and
pressure behavior observed during pretreatment in-situ stress tests or minifracs.

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b. Select the appropriate proppant type based


on crushing and formation embedment
characteristics.
c. Determine the maximum allowable treating
pressure vs. the fracture height relationship
based on the in-situ stress distribution.
d. Determine the maximum allowable pump
rate based on pipe frictional pressure losses,
fracturing fluid shear degradation factors,
and equipment limitations.
e. Select the fracture length and calculate the
required fluid volume and proppant quantity.
f. Repeat Steps a through e for several different fracture lengths.
4. Calculate treatment costs for each stimulation
option considered.
5. Estimate the expected production function for
each stimulation option considered.

Additional Considerations
When considering how to optimize completions and
stimulation treatments in horizontal or deviated wells, the
engineer must also consider partial treatments.4,5 When
stimulating a well, one generally assumes that the stimulation fluid can be distributed at will, and that it will
completely remove any damage present. This result is
usually not the case, and it should be considered an ideal
situation, perhaps useful only in sandstone reservoirs and,
by default, in openhole or slotted-liner completions.
Engineers can adapt the NPV calculations to select and
optimize completion and stimulation designs for partial
completions. First, they must calculate the revenues for
the well (fully stimulated in every perforated segment).
They then compare revenues to those for the unstimulated
well where the whole length of the horizontal portion is
perforated. The incremental revenues are balanced against
the stimulation and completion costs. The NPV for partial
completions and stimulations (NPVpc) can be calculated
with the following equations:

6. Calculate the present value of the net production


revenues based on an assumed discount rate.
7. Calculate the treatment cost for each stimulation
option. Include costs associated with fluids,
proppants, hydraulic horsepower, and miscellaneous items.

NPV pc =
n =1

(11.3)

where

8. Calculate the NPV of each stimulation option by


subtracting the treatment cost from the wells
discounted revenues.
9. Construct the NPV or appropriate economic
criteria vs. stimulation parameter curves.

Rn = Rk ,n , stim Rn ,unstim
k =1

Rk,n,stim = net expected revenues from stimulated well


segment k in period n

For acid stimulations, consider the damage


removal depth as an independent variable.

Rn,unstim= net expected revenues from perforated and


unstimulated well in period n

For hydraulic fracture stimulations, use the


fracture length, the number of fractures, or a
combination of fracture length and the number
of fractures.

= number of segments to be stimulated

Ck

= cost of stimulation treatment for segment k

Once engineers have selected the optimum stimulation


treatment and design, they can prepare the actual
treatment schedule using standard industry methods.

204

M
Rn

( 1 + i )n k =1 k

Economic Optimization of Stimulation Treatments

Full stimulation will provide the maximum NPV in a well


stimulated along the entire horizontal section. This finding
is applied in a partially completed horizontal well when
complete damage removal is assumed in each perforated
segment. Thus, in this concept of NPV, fully stimulated
segments are balanced against an unstimulated, totally
perforated horizontal well.3

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Table 11.1Reservoir Properties

8,700 psi

Wellbore radius

0.4 ft

Formation thickness

280 ft

Wellbore length

2,700 ft

Distance from formation bottom to wellbore

2,700 ft

Porosity

12%

Formation radial permeability

0.01 md

Formation vertical permeability

0.01 md

Fracture half-length

215 ft

Fracture conductivity

430 md-ft

Skin factor

Wellhead temperature

100F

Bottomhole temperature

285F

Figure 11.1Schematic showing drainage area configuration for horizontal well completed with transverse hydraulic
fractures.

-1

Wellbore fluid compressibility

52.25E-6 psi

Wellbore fluid viscosity

0.03378 cp

Wellbore fluid formation volume factor

0.00315 RB/STB

Gas saturation

59%

Water saturation

41%

Considerations for Acidizing


In acidizing treatments on vertical wells, the treatment
objective is generally to inject sufficient acid to remove
any drilling- or completion-induced damage from the
formation. In horizontal or deviated wells, which can be
very long, extremely large acid volumes and treatment
times may be required for complete damage removal.
Because treatment times can be unacceptably large and
treatment costs may be high, partial damage removal is an
option to be considered.3,4 Partial removal would leave
an outer ring of damage surrounding the stimulated area.

Considerations for Hydraulic Fracturing


When optimizing hydraulic fracture-stimulation treatments, the engineer must consider the following:
The performance of a highly conductive longitudinal fracture is almost identical to that of a fractured
vertical well.5
In a deviated well stimulated with transverse
fractures, the outer fractures will outperform the
inner fractures. In most cases, more than two

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Horizontal Well

om000549

Initial reservoir pressure

Transverse Fracture

fractures will be necessary for efficient reservoir


production. 5
A well intersected by four transverse fractures will
have a production rate only slightly less than that
of a well intersected by eight fractures.5 The
cumulative production will be different, though.
When a horizontal or deviated well is stimulated with
transverse hydraulic fractures, the optimum number of
fractures and the length of each individual fracture must
be determined. Location-dependent fracture lengths are a
possible option that should be considered, which significantly increases the number of alternatives to be evaluated.
The larger the number of transverse fractures, the faster
the operator can recover costs, yet a smaller number of
fractures will likely yield a greater benefit/cost ratio.
Increasing the number of fractures also increases treatment costs and any risks associated with the treatment.

Optimizing the Number


of Transverse Fractures
The importance of economic considerations is provided
in the following example, presented in Reference 6. A
horizontal well will be fracture-stimulated with transverse
hydraulic fractures (Figure 11.1). Table 11.1 provides
formation and completion details.
Expected production rates for the unfractured and the
fractured cases are shown in Figures 11.2 and 11.3
(Page 206). The effect of the number of fractures on
cumulative production is shown in Figure 11.4
(Page 207). On the basis of these production estimates,

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60

50

Production Rate (MMscf/D)

5 Fractures
40

30
3 Fractures

20
2 Fractures
Open Hole
om000550

10
1 Fracture
0
0

10

15

20

25

Production Time (Month)


Figure 11.2Comparison of fractured and unfractured horizontal well production rates.

60

Production Rate (MMscf/D)

50

40

Number of
Transverse Fractures
8
6

30

5
4

20

om000552

10

1
0
0

10

15

20

25

Production Time (Month)


Figure 11.3Effect of number of transverse fractures on horizontal well productivity.

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Economic Optimization of Stimulation Treatments

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Number of Fractures
8
7
6
5

12

Cumulative Production (Bcf)

10

6
2
4
1

om000553

0
0

10

20

15

25

Production Time (Month)

Figure 11.4Effect of number of transverse fractures on cumulative well productivity.

18.00
16.00
Discount Rate
10%
15%
20%

Net Present Value (MM$)

14.00
12.00
10.00
8.00
6.00
4.00

0.00
0

Number of Transverse Fractures

om000554

2.00

Figure 11.5Net present value for different numbers of transverse hydraulic fractures.

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Economic Optimization of Stimulation Treatments

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4.00
Discount Rate
10%
15%
20%

Net Revenue Increase (MM$)

3.00

2.00

om000555

1.00

0.00
0

Number of Transverse Fractures


Figure 11.6Net increase in revenues realized by increasing the number of transverse hydraulic fractures.

8.00

Discount Rate
10%
15%
20%

Benefit/Cost Ratio

6.00

4.00

om000556

2.00

0.00
0

Number of Transverse Fractures


Figure 11.7Benefit/cost ratio for increasing the number of transverse hydraulic fractures.

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the NPV for the various options can be calculated. The


NPVs of the expected revenues for discount rates of
10%, 15%, and 20% are shown in Figure 11.5 (Page
207) as a function of the number of transverse fractures.
The increase in NPV realized by the addition of each
transverse fracture is shown in Figure 11.6 (Page 208). It
is interesting to note that the additional net revenue
realized by each new fracture declines sharply as the
number of transverse fractures increases.
On the basis of net revenues alone, it is possible to
justify creating six transverse hydraulic fractures.
However, since each additional fracture results in an
increase in net revenues, there is no real optimum
number of fractures based on revenues alone. Even so,
the creation of seven or eight transverse fractures cannot
easily be justified based on the incremental revenues
attributed to the seventh or eighth fracture.
As a means of determining the optimum number of
fractures, the benefit/cost ratio shown in Figure 11.7
(Page 208) should be considered. Based on the benefit/
cost ratio, four transverse fractures is the optimum
completion/stimulation option for this particular situation.

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References
1. Gidley, J.L., Holditch, S.A., Nierode, D.E.,Veatch Jr.,
R.W.: Chapter 17: Economics of Fracturing, Recent
Advances in Hydraulic Fracturing, Textbook Society of Petroleum Engineers Monograph Series,
1989, pp. 357-375.
2. Economides, M.J., Nolte, K.G.: Reservoir Stimulation, Textbook - Prentice Hall, Englewood Cliffs, NJ,
07632, Second Edition, 1989, pp.8-15 and 8-16.
3. Economides, M.J., Frick, T.P.: Optimization of
Horizontal Well Matrix Stimulation Treatments,
SPEPF, May 1994, pp. 93-99 (SPE 22334).
4. Frick, T.P., Economides, M.J.: A Case Study for the
Matrix Stimulation of a Horizontal Well, paper
SPE 23806 presented at the 1992 SPE International
Symposium on Formation Damage, Lafayette, LA,
Feb. 26-27.
5. Retnanto, A., Economides, M.J., Ehlig-Economides,
C.A., Frick, T.P.: Optimization of the Performance
of Partially Completed Horizontal Wells, paper
SPE 37492 presented at the 1997 SPE Production
Operations Symposium, Oklahoma City, OK,
Mar. 9-11.
6. Soliman, M.Y., Hunt, J.L., Azari, M.: Fracturing
Horizontal Wells in Gas Reservoirs, paper
SPE 35260 presented at the 1996 SPE Gas Technology Symposium, Calgary, Canada, Apr. 28 - May 1.

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