Q: With the new approach of the Petro.ai geophysical models, how should we be looking at well spacing in the industry?
A: "There’s this idea that we’ve figured out well spacing. You can’t really figure out well spacing,” Dr. Troy Ruths, CEO of Petro.ai begins, settling back into his chair and opening his hands wide, “What you can do that’s far more important for optimizing productivity is, you can understand your reservoir. You can understand your productivity drivers. And well spacing is the result of that understanding, of those productivity drivers, of the OFS input or how much a well costs, of commodity prices, and of course, company goals. People are viewing well spacing as something that’s static or learned. But well spacing is really an optimization function on all those interwoven factors.
“The way people approach spacing right now, because it’s been such a hunt, is they want to treat it as something that they set and then tell their investors about it. Then they tell the market about how they’re going to develop the reservoir, their exploitation strategy.
“An exploitation strategy when done right is responding to your dynamic inputs; it’s not something that stays static, unchanging. Well spacing strategies need to be updated based on parent wells, on all the activity around them. The shale reservoir is changing more than you think. When you frac a well, you’re migrating hydrocarbons towards a well bore and that affects other hydrocarbons around it. There are large natural fracture systems in the subsurface that are also affected by the frac'ing.
“It's all a way of saying that we need to reboot shale. We have actually known this, but now we need to reboot our confidence in shale. We’ve been experimenting with data in shale for a while, but everyone’s confidence has been eroded by the last shale crash. We need to be confident again in our ability to exploit the reservoir.
“Everyone’s trying to prove that they can make returns and it’s time to get ambitious again. It’s time to push the envelope with each DSU, each drilling spacing unit.
“If you have shale acreage, you are in elite company. If you are still holding on to it, you’re in elite company. But that doesn’t mean you play it safe now. That means you have to keep pushing the envelope and use all your subsurface information to do that. It starts with your development plans. It starts with being ambitious with what you can get out of your reservoir. It starts with understanding that your exploitation strategy is a function of all those things that we talked about.
“Commodity prices are changing a lot and when commodity prices change your cost of drilling a well changes. And the cost of completing a well changes, because OFS companies need to make money. Because the commodity price is going up, it actually means that your costs of putting these wells in the ground change too. With the cost of steel and the accessibility of steel, that might be an input.
“It’s all to say that the exploitation strategy in shale, because these wells turn around so quickly, needs to move at the pace the world is changing. And the pace the reservoir is changing. And the pace the knowledge of your reservoir is changing.
“At Petro.ai we provide you with that engine. That function is what Petro.ai delivers to you. We don’t do it in a black box. We do it by loading in the mental models, the commercial models. Working closely with leadership in the companies to understand what they’re going for.
“We have some companies who want to have really wide spacing and guaranteed success. We have other companies who really want to push the envelope and put as many wells as they can into a cube economically.
“All of that is possible in shale but it requires people to be confident that they can push the envelope again on their well spacing and their ambition. When I think about rebooting shale, I think it begins with our confidence in what shale can provide and our confidence in our human ability to really exploit it and get the most out of it. That’s what’s been missing—the ability to pull all the inputs together, all of those variables to make the best decision you can on well spacing.
“I’m excited to see a lot of companies that want to push the envelope. That’s starting to happen again. Why are they pushing the envelope?Because they’re realizing that they only have a finite amount of acreage to extract as much as they can. And they need to use every dollar they have now to turn their reservoir acreage into a fantastic cash flow at these commodity prices.”