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**An Analytical Solution to Estimate the Optimum Number of Development Wells to
**

Achieve Maximum Economical Return

R.D. Corrie, SPE, Inemaka, S.A.

**Copyright 2001, Society of Petroleum Engineers Inc.
**

rapidly, but at a high cost. In either case, the project’s

This paper was prepared for presentation at the 2001 SPE Annual Technical Conference and economic return would be negatively affected. Between these

Exhibition held in New Orleans, Louisiana, 30 September–3 October 2001.

two extremes there ought to be an optimum number of wells

This paper was selected for presentation by an SPE Program Committee following review of

information contained in an abstract submitted by the author(s). Contents of the paper, as

Wo that would yield maximum economic return. This concept

presented, have not been reviewed by the Society of Petroleum Engineers and are subject to applies equally for vertical wells and/or horizontal wells. In

correction by the author(s). The material, as presented, does not necessarily reflect any

position of the Society of Petroleum Engineers, its officers, or members. Papers presented at the real world however, reservoirs do not have homogeneous

SPE meetings are subject to publication review by Editorial Committees of the Society of physical properties neither there exist uniform and continuos

Petroleum Engineers. Electronic reproduction, distribution, or storage of any part of this paper

for commercial purposes without the written consent of the Society of Petroleum Engineers is reservoirs. Traditionally, the optimum number of wells (well

prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300

words; illustrations may not be copied. The abstract must contain conspicuous spacing) has been determined graphically from a plot of

acknowledgment of where and by whom the paper was presented. Write Librarian, SPE, P.O.

Box 833836, Richardson, TX 75083-3836, U.S.A., fax 01-972-952-9435.

economic return verses well spacing as proposed by Muskat2.

A method to determine the optimum well spacing

straightforward without a plot was presented by Tokunaga and

Abstract Hise3. This method, however, assumes the production rate of

The preliminary estimate of the number of wells required to all wells to remain constant over life (no decline). The

exploit a reservoir is one of the most important variables analytical solution presented in this paper assumes the well’s

needed to decide on an oil field development. Traditionally, initial production rate to decline over life and also that the

the optimum number of wells has been determined graphically ultimate primary recovery is independent of well spacing.

from a plot of economic return verses well spacing. This paper

derives an equation to solve this problem directly without the The Optimum Number of Wells

plot and presents an illustrative example for its application. The optimum number of wells can be determined analytically

The independent variables of the equation are the reserves, the by finding the maximum economic return from an equation

initial production rate per well (assumed to decline over life), that expresses the net present value of the project over its

the oil price at wellhead, the total present value cost per well useful life as a function of the number of development wells,

and the interest rate. following Muakat´s proposed economic method. The net

present value of an oil field development project can be

Introduction expressed approximately by the equation,

At the onset of an oil field development, once the field size

has been delineated, one of the most important variables NPV (W) = df Np V - CW - Z (1)

needed to plan the development of an oil field is a preliminary

estimate of the number of development wells initially The economic model expressed by equation (1) has been

required. Assuming homogeneous rock properties and ideal simplified by making the following assumptions:

geological conditions (uniform and continuos reservoir), the • The total cumulative oil production (reserves) remains

ultimate primary recovery is independent of well spacing1. constant

Muskat2 visualized the well spacing problem from two points

• The present net value is after income tax

of view: the physical ultimate recovery and the economic

• All investments are incurred at year zero

ultimate recovery. From the physical standpoint there is a

minimum number of wells Wm required to achieve maximum • All wells have the same initial oil production rate and

extraction. Increasing the number of wells beyond this number decline at the same rate over life. The decline rate is a

would not increase the ultimate primary extraction. From the function of the number of wells, the initial daily oil

economic ultimate recovery standpoint, giving no time limit production rate and the total reserves.

for a reservoir development project’s life, it can be stated • The oil price is netted back to the wellhead

axiomatically that at one extreme a few wells can drain the

whole reservoir, and at the other extreme, an unnecessary high The discount factor (df) associated with the declining income

number of wells could effectively drain the reservoir more is estimated by the expression

a.4 $MM per well. It gives an indication of the order of magnitude of the maximum economic benefit. A: 2000 acres PV (Np) = 365 W Qi / [-ln [(1 – D) / (1+ i)]] 5) • Interest rate.2MM$ Table 1 and Figure 1 present NPV(W) for various values of W d (NPV(W))/d (W) = 0 (9) by use of equation (8) in order to determine the optimum number of wells Wo by the traditional way. Table 2 presents a sensitivity analysis of the optimum Maximum profit is found by replacing W by Wo in equation number of wells compared to the Base Case by varying the (8). . by replacing the expression “-ln [(1 – D)” from equation (4) in equation (6).5}/(-365QC) economic model latched on to an exponential production (11) decline model.10)] – 2400000 * 18 – 30000000 Differentiating NPV(W) with respect to W and making it equal to zero in order to find the maximum value of NPV(W) NPV(18) = 94. beyond which additional investment in the project will be uneconomic.8 ~ rounded to 18 wells expressed as.50 ∼ 2360 ft (hexagonal) NPV(W) as a function of W. D.Z (12) The cumulative oil production (Np) from a number of wells (W) is determined by the equation4. which is found to the following quadratic equation is derived: be 18 (111 acres per well). As indicated in the introduction. around 16 wells (125 acres per well) which yields about the 365 Qi Vln (1+i) + C(ln(1+i))2 = 0 (10) same order of magnitude of economic return than 18 wells. Z: 30 $MM • Productive area. the object of this paper is to present an equation that gives directly a preliminary estimate Solving for W in the quadratic equation (10) we find the of the number of wells required to decide on the development optimum number of wells (Wo). Uses and Limitations Given the data below estimate the optimum number of wells Np = 365 W [Qi – Qt] / [-ln (1 – D)] (3) and the maximum economic return of the project: • Total cumulative oil production. NPV(W)={365WQiV/[(365WQi/Np)+ln(1+i)]}-CW-Z NPV(18) = 365 * 18 * 600 * 16 / [(365 * 18 * 600 / (8) 14000000) + ln (1+0. The optimum number of wells and its corresponding maximum net present value are determined by using equations The discount factor “df” can be expressed as.10)]0. i: 0.5} / (-365 * 600 * 2400000) Finally. It uses a simplified Wo = Np {ln(1+i)C-[365QVCln(1+i)]0. A near optimum Wo could be C (365 Qi / Np)2W2 + 730ln (1+i)C QiW/ Np . Np: 14 MMSTB Neglecting Qt at economic limit (Qel).2 R. D = 0. C: 2. the discount factor df can be Wo = 17. Details for deriving equations (3) and (5) are described in the Results: Appendix.10) * 2400000-[365* 600* 16 * 2400000 * ln (1+0. interest rate (i) and the oil value (V). Qi : 600 STB/d • Oil price at well after income tax. V: 16 $/B Np = 365 W Qi / (-ln (1 – D) (4) • PV of capital investment after income tax. (11) and (12) respectively: df = -ln (1 – D) / [ -ln (1 – D)+ln (1+i) ] (6) Wo = 14000000* {ln (1+0. Details for arriving at equations (10) and (11) are described in the Appendix. • Initial daily oil production rate. Well density = A / Wo ∼ 111 acres/well df = [365WQi/ Np)]/[(365WQi/ Np)+ln(1+i) ] (7) Replacing equation (7) in equation (1).a. of an oil field.245 p. From equation (4). CORRIE SPE 71431 df = PV (Np) / Np (2) NPV(Wo)=365 WoQiV/[(365 WoQi/ Np) + ln(1+i)] - C Wo .10 p. we can express Well spacing = 224 (acres)0. The present value of Np at interest rate (i) is estimated by the • PV of capital investments not dependent on the number of equation wells after income tax. It is not a physiacal model.

” Drilling and Production Np = 365 [Qi . Buckley: “A Factual Analysis of the Effect of Well Spacing on the Oil Recovery. Wo = the optimum number of wells required to yield t=0 (i) maximum economic return Z = the present value of other investments not Making C=0 at t=0. M. Np = [365 Qi (1-D)t / ln (1-D) ] + C | t=t .C. Nomenclature Np = ∫ 365 Qt dt (b) A = the productive area. dollars D = the yearly production decline rate.” McGraw- Hill Book Company. barrels per day V = the oil price netted back to the well after income PVNp = ∫ 365 PVQt dt (g) tax’s effect. the initial oil production rate per well (assumed to decline). barrels per day The present value cumulative oil production PVNp from Qt = the daily oil production rate per well at time “t”.046 873 E+03= m2 equation (9) in order to find a maximum value of NPV(W) : barrel x 1. Tokunaga. fraction p. R. (1949) 810-904. The cumulative oil production Np from time 0 to time “t” is. Muskat. dollars PV (Np) = the present value of reserves. 3. expressed in equation (5) Valuation..Qt] / [-ln (1-D)] which is equation (3) of wells.Qi (1-D)0 ] / ln (1-D) (e) (reserves). Details of obtaining the derivative of d(NPV(W))/d(W) in acre x 4. the oil price Qt = Qi (1-D)t (a) netted back to the well. and S. the optimum number of wells to achieve equation (5)4 : maximum economic return can be estimated directly following the economic method proposed by Muskat.048* E –01= m NPV(W)={365WQiV/[(365WQi/Np)+ln(1+i)]}-CW-Z (8) *Conversion factor is exact . J.589 873 E -01= m3 ft x 3. barrels NPV (W) = the net present value as a function of the number Np = 365 [Qi . barrels The present value of oil production rate PVQt at time “t” is Qel = the daily production rate per well at economic limit. :”A Method to Determine Neglecting PVQt at economic limit. dependent on the number of wells after income tax’s effect. Inc. and Hise. cumulative oil production of W wells is 4. time 0 to time “t” is. It uses as The daily oil production rate Qt at time “t” is independent variables the oil reserves. i= the interest rate or discount rate.Qi [(1-D)/(1+i)]0 } / ln [(1- D)/(1+i)] References (j) 1.J. March 1956 Si Metric Conversion Factors B. adimensional Making C=0 at t=0. acres C = the present value of all capital investments per Np = ∫ 365 Qi (1-D)t dt (c) well after income tax’s effect.: “Estimation of Primary Oil Reserves. : “Physical Principles of Oil Production. H. the total present value cost per well and the interest rate. the present value of Optimum Well Spacing. Np = cumulative oil production during project’ life Np = 365 [Qi (1-D)t . AN ANALYTICAL SOLUTION TO ESTIMATE THE OPTIMUM NUMBER OF DEVELOPMENT SPE 71431 WELLS TO ACHIEVE MAXIMUM ECONOMICAL RETURN 3 Conclusions Appendix Assuming that the ultimate primary recovery is independent of A. API (1945). R. dollars Np = 365 {Qi [(1-D)/(1+i)]t . Arps.a. barrels per day PVQt = Qi (1-D)t / (1+ i)t (f) Qi = the initial daily oil production rate per well.” paper presented at the Petroleum Conference-Economics and Np=365 W Qi /-ln [(1-D)/(1+i)]. Craze.” SPE 1673 (1966). $/barrel W = number of wells PVNp = ∫ 365 Qi {[(1-D)/(1+ i)]t } dt (h) Wm = the minimum number of wells required to achieve maximum oil extraction Np = 365 Qi {[(1-D)/(1+i)]t / ln [(1-D)/(1+i)]} + C | t=t . Details for deriving Np in equation (3) and PV (Np) in well spacing. fraction p.a. Tex. B. t=0 (d) df= a discount factor function associated with a declining income. (k) 2.PVQt] / -ln [(1-D)/(1+i)] Practices.F. Dallas.

2 8 78. MM$ -CG2W2 –2CGHW + (FH.4 R.15 i = 0. Plot of NPV(W) verses W by use of equation (8) in order to determine the optimum number of wells W o by the traditional way. Base Case) 19 20 20 19 22 24 NPV(W) = [FW/(GW+H)] .CH2)=0 (t) 50 40 30 Solving for W in the quadratic equation (t): 20 10 W=[2CGH-(4C2G2H2+4CG2FH-4C2G2H2)0. which is the optimum number of wells Wo expressed in equation (11).5] / (-CG) (w) Figure 1. CORRIE SPE 71431 Transforming expressions: 365 Q V =F (l) Table 2 − Sensitivity Analysis on Wo 365 Q / Np = G (m) V. D. $/B i = 0. Table 1 − NPV(W) vs W N° of Wells (W) NPV(W) 1 -0.Z (o) d (NPV(W))/d (W) = 0 (p) d (FW/(GW+H)/d (W) .C = 0 (r) 100 90 F(GW+H)-GFW.0 12 89.8 16 93.7 24 91.1 18 94.CW .C = 0 (q) [(F(GW+H)-GFW)/(G2W2+H2+2GHW)] .CG2W2+CH2+2CGHW = 0 (s) 80 70 60 NPV. W =Np {ln(1+i)C-[365QVCln(1+i)]0.2 19 94.10 i = 0.5}/ (-365QC).8 17 94. By replacing the expressions (l).5] / (-2CG2) (u) 0 -10 0 5 10 15 20 25 30 N um ber of W ells W = [2CGH – 2G (CFH)0.8 4 49. (m) and (n) in equation (w) it is obtained.8 .0 28 86.20 12 14 15 16 ln (1+i) =H (n) 16 18 (Wo .0 20 93.5] / (-2CG2) (v) W = [ CH – (CFH)0.

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