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The Value of Zeros and Ones

Good paper this month in the International Journal of Coal Geology on global trends in coal bed methane (CBM) drilling.

CBM has been a success story in unconventional gas, currently producing some 10% of total U.S. output.

And unlike shale gas, CBM has successfully "hit the road", being deployed commercially in other nations like China and Australia.

It's been an interesting learning curve along the way. A few years back a number of North American CBM companies went to China, talking about Tcfs of gas potential on their acquired leases. But many of these plays exploded on the launch pad. As it turns out, it doesn't matter how much gas you have in place, if none of it flows to the surface in your wellbore.

This month's Coal Geology paper reiterates this point. Even though the CBM industry is now relatively mature, coal seam wells are far from "plug and play". Each coal has very unique characteristics. And what works in one field (or even one section of one field) may be a total bust in another.

One of the biggest variables is permeability (the ability of fluids to flow through a rock mass). And permeability has a big effect on designing an effective CBM drilling campaign.

According to the study, ultra-low permeability reservoirs (defined as less than 3 millidarcies, for those of you who follow such things) have seen best production success using a complex series of inter-fingering horizontal wells. Pinnate or quadrilateral designs (see figure below, from the paper) have shown some of the best results.

Drill Site

For moderate permeability coals (3 to 20 mD), such as the Manville in Alberta, best results appear to have come by drilling a vertical well with horizontal offshoots heading out into the thickest and most permeable seams (remember, many CBM wells produce from several distinct coal seams... up to 25 in places like the Central Appalachians).

For high-permeability wells running up to 100 mD, best results have been seen using "cavity completions". This basically involves a controlled collapse of the coal around a section of the wellbore, creating a large hole that depressurizes the surrounding formation. Allowing gas to flow into the well more effectively.

The point being that although all of these fall into the broad category of "CBM", they are in fact very different strategies. Using the wrong one on a given play may make the difference between an economic well and a bankrupt company.

Choosing the right completion means having a good idea of things like permeability and seam thickness (along with fines content, thermal maturity, etc.) before you start drilling a production well. Only by arming with this information can a company reduce its risk of drilling a dud.

Of course, some companies (particularly majors) drill several assessment wells on a play for the expressed purpose of gathering the above information, before getting down to the business of drilling commercial production wells.

But this is an expensive way to collect the "zeros and ones" on a play. And a method very ill-suited to smaller companies. Most junior outfits simply don't have the money to spend on data-gathering drilling.

Too often this means that juniors skip the information-gathering step. They take the few million dollars they've managed to raise, point a finger at the map, and drill what they hope and pray will be a boomer of a well.

This approach has worked, and made some investors a lot of money. But it's extremely high-risk. The annals of drilling history are littered with carcasses of small E&Ps that came up dry, couldn't raise more funds, and ended up going bonk.

A much better approach is to consider "information availability" as a key requirement when assessing plays at the acquisition stage.

Too often when a company first considers picking up leases in a play, they look only at the superficial details. We've got thick coals in this basin, there's production nearby, and estimates are we have a lot of gas in place. Good place to drill a well.

But an equally important question is: how much technical information is available on this specific site (or nearby)?

Are there any historical drill holes? If so, are you in a region where the government collects drilling information (logs, cores) and makes it available to the public (or at least to you)?

Sometimes governments themselves will have completed geological surveys or even drilling in an attempt to "prime" plays for private-sector funding. Such information can be invaluable.

Finding out whether such information is available sometimes takes just a few days of desk study. Which can save millions in costs if the information leads to better drilling and completion decisions.

Information can be so valuable that it may become one of the most critical factors in choosing between different plays. A basin with more available data might be preferred over one with higher-impact geology. On a risk-adjusted basis, the value of smaller but more certain target could be higher than a blind elephant-shot.

This rule becomes particularly important when working in immature basins, especially in countries that haven't seen heavy petroleum exploration. It's crucial for CBM, and will also be for shale gas as that sector expands into new areas around the world.

By. Dave Forest of Notela Resources

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