HOUSTON—The earth model has been around for more than 25 years, but Permian-focused Laredo Petroleum (NYSE: LPI) thinks data collected for the model across its 140,000-plus acres will soon pay off.
Laredo’s earth model objectives cover the standard wellbore, landing-point selection and geosteering, along with frack design and spacing, frack barriers and lateral lengths.
Add this to a database packed with whole cores, sidewall cores, single-zone tests, open-hole logs, 3-D seismic and production logs. Then there is production-related data that examine fluid quality, rock brittleness, fracturing and lithology—to name a few of about 70 attributes from various datasets. The ingredients could form the perfect analytical recipe for designing drilling programs and successfully tapping unconventional resources in this multi-stacked horizontal play.
“We think that the earth model has potential, if you look at what we’ve done consistently, to maybe have as much as a 15-20% production increase in EURs,” Laredo Petroleum CEO Randy Foutch said July 8 during an Independent Petroleum Association of America luncheon. “A 10% increase in the EUR level translates into exactly a 10% increase in rate of return.”
The earth model is what Foutch calls one of the company’s value catalysts, which could be considered a sought-after commodity itself given today’s price environment. As oil prices rebound after being halved about a year ago, operators have become more efficient—turning to technology and improved techniques—to boost production and ultimately profits.
For Laredo Petroleum, such efforts include:
- Drilling stacked laterals on multi-well pads resulting in a cost savings of about $400,000 per well.
- Having about 3,200 development-ready horizontal well sites in the basin.
- Production corridors that take advantage of the company’s contiguous acreage, reducing transportation costs and enabling centralized infrastructure.
- Interest in the Medallion Pipeline, which opens the door for crude oil sale.
Analysts appeared to have noticed, responding positively.
In a June 24 note, Simmons & Co. International’s Brian Gamble said Laredo Petroleum’s large development-ready inventory gives the company “a very solid floor valuation.”
Gamble said Laredo Petroleum can continue building momentum by showing the efficiency potential from the corridors, testing additional acreage and keeping its midstream business on track.
“LPI can very quickly become significantly more attractive, but higher oil prices to allow drilling acceleration are necessary,” Gamble said in the note.
Foutch said the company continues to gain efficiency.
“We’re really driving down our capital efficiency to where $50-$60 is pretty nice,” Foutch said of oil prices before returning to the earth model. “I think the earth model has a really, really good chance of being meaningful.”
Foutch added that the industry has talked about earth models for decades. But now Laredo Petroleum has drilled enough wells and gathered enough data, with help from an oilfield service company, to turn it into something “extremely meaningful economically,” he said.
Foutch explained how early data was generated from about 900 vertical wells.
“We decided early on to get high-quality logs on every one of those wells,” he said. The process included filling a database with electric logs and lots of testing. “We would drill a well, but instead of comingling and fracking it, we would perforate, frack and produce one zone. We did that dozens of times.”
The result pointed the operator to which zones were actually capable of production sooner rather than later. Knowledge gained from earth modeling efforts enable companies to better use geological findings to determine which way to direct the drillbit.
“We can geosteer and stay in zone much, much better with this data. And we’re seeing it this year,” Foutch said. “I think we’ve got a lot of ways to increase our value.”
Laredo Petroleum said it has identified about 4.3 billion barrels of resource potential at more than 7,700 locations. E&P efforts in the company’s southern acreage are focusing on the shallow part of the Wolfberry, while efforts in northern acreage are targeting the deeper Wolfcamp, Cline Shale, Strawn and Atoka formations, according to the company’s website.
Velda Addison can be reached at firstname.lastname@example.org or via Twitter @veldaaddison.