When the oil price is high we rarely look at wells to determine if they should be shut-in until there is a problem. The reality for the domestic oil and gas industry is that some wells are simply no longer economical. If the well is losing money it should be shut-in, but it’s never that simple.
- Is the well uneconomic?
- Will we save money by shutting the well in?
- What are the costs of shutting the well in?
- Will we lose the lease if the well stops producing?
- If we shut it in, will it be possible to bring it back on-line?
- Can the costs be reduced and make it economical?
- Can production be increased?
OVS Group has developed a process to help determine which wells
are “marginal” and whether they should be shut in.
The first problem for evaluating a marginal well is determining the costs associated with operation. Water disposal, chemical injection, diesel or electricity are directly associated with the well, called variable costs. Other allocated or fixed costs are assigned to the well like field overhead, administrative costs, and other general costs. These costs are typically shared among a large number of wells. If the well is shut-in, will these costs simply shift to other wells? Other costs may include sporadic charges to the well for work-overs, remediation, and other non-recurring costs. Further complicating the cost determination are business arrangements with partners or vendors. One operator owned the salt-water disposal well (SWD) and would receive payments from its non-op partners for their share of the water disposal well. Depending on the accounting practices, this revenue may or may not be recognized at the well, and not reduce the cost of operating the well. Some vendors will provide increasing discounts for volume, reducing use of some chemical may result in the loss of that discount.
Ranking wells based on operating costs is important but does not tell the whole story. Shutting a well in may impact operations elsewhere. If the well is the only or last producing well on a lease, shutting it in for some period of time may result in the operator losing the lease. Some wells may have costs associated with shutting them in or bringing them back on in the future.
OVS Solution – Marginal Well Workflow
OVS Group worked with one of its clients to create a workflow that would calculate the current operating costs for all of its wells and evaluate other considerations to determine if shutting in the production was warranted. One operator reported that by shutting-in a small number of wells using this process, they gained significant costs savings over the course of a year. The workflow separated each cost category and added back any revenue not accounted for in the ERP system as revenue directly to the well. The tool also removed any workover expenses that may have occurred recently in the well so they did not impact the true operating expenses. Additionally, the engineers built scenarios that included discount rates, commodity price assumptions, and other items.
The Marginal Well Workflow deployed on the One Virtual Source platform also allows for lease status, shut-in costs, and other considerations to be included in the ranking of potential wells for shut-in.
This workflow produces, automatically, based on the selected scenario, a ranked list of wells for potential shut-in. The ranking is based on business rules determined by the client for each asset taking into consideration profitability, variable costs, fixed costs, lease status or any other important criteria. The engineer is presented with the list and allowed to comment on each well. In addition, the engineer is able to select a course of action from a list of options, such as Shut-In, Leave On, Do Not Resuscitate or Work Over.
This Marginal Well Workflow can be incorporated into other OVS workflows, like the Well Review Tool. Results from these calculations could also be used in the Surveillance by Exception tool to generate alarms, delivered to the engineers as wells enter marginal status.
“One operator reported that by shutting-in a small number of wells using this process, they gained significant costs savings over the course of a year.”
OVS is used to connect to a number of data sources depending on the workflows needed by a client. For this workflow, OVS will connect to the production or production accounting system to get the official sales volumes for a given period of time. To determine the profitability, OVS will also connect to financial information. From this system, the workflow will need costs typically used to build Lease Operating Statements.