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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.

Chapter 11

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

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

201

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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.

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.

202

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

Chapter 11

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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

= 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-

Chapter 11

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.

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.

203

Exit PDF

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:

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

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

segment k in period n

removal depth as an independent variable.

unstimulated well in period n

fracture length, the number of fractures, or a

combination of fracture length and the number

of fractures.

Ck

treatment and design, they can prepare the actual

treatment schedule using standard industry methods.

204

M

Rn

( 1 + i )n k =1 k

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

Chapter 11

Exit PDF

8,700 psi

Wellbore radius

0.4 ft

Formation thickness

280 ft

Wellbore length

2,700 ft

2,700 ft

Porosity

12%

0.01 md

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

52.25E-6 psi

0.03378 cp

0.00315 RB/STB

Gas saturation

59%

Water saturation

41%

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.

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

Chapter 11

Horizontal Well

om000549

Transverse Fracture

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.

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,

205

Exit PDF

60

50

5 Fractures

40

30

3 Fractures

20

2 Fractures

Open Hole

om000550

10

1 Fracture

0

0

10

15

20

25

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

60

50

40

Number of

Transverse Fractures

8

6

30

5

4

20

om000552

10

1

0

0

10

15

20

25

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

206

Chapter 11

Exit PDF

Number of Fractures

8

7

6

5

12

10

6

2

4

1

om000553

0

0

10

20

15

25

18.00

16.00

Discount Rate

10%

15%

20%

14.00

12.00

10.00

8.00

6.00

4.00

0.00

0

om000554

2.00

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

Chapter 11

207

Exit PDF

4.00

Discount Rate

10%

15%

20%

3.00

2.00

om000555

1.00

0.00

0

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

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

208

Chapter 11

Exit PDF

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.

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.

Chapter 11

209

210

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Chapter 11

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