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Impact of low prices on shale gas production strategies

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  • Svetlana Ikonnikova and Gürcan Gülen

Abstract

We investigate shale gas drilling strategies during times of low oil and gas prices. Producers exhaust their high-productivity locations quickly in times of low prices, and then adapt their drilling practices to increase the inventory of commercially viable projects. Investment in a new well may be reduced relative to the cost of previously drilled wells in the same location (from now on, original wells) through closer well spacing, use of existing infrastructure, and, perhaps most importantly, use of fewer inputs (e.g., less water and proppant). Inventory of drilling locations is expanded through such infill drilling, which may or may not be economically viable on an individual well basis but which has the potential to increase area recovery and portfolio returns.

Suggested Citation

  • Svetlana Ikonnikova and Gürcan Gülen, 2015. "Impact of low prices on shale gas production strategies," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).
    • Handle: RePEc:aen:journl:ej36-si1-gulen
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    References listed on IDEAS

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    1. Kaiser, Mark J., 2012. "Profitability assessment of Haynesville shale gas wells," Energy, Elsevier, vol. 38(1), pages 315-330.
    2. S. Ikonnikova, J. Browning, G. Gulen, K. Smye, and S.W. Tinker, 2015. "Factors influencing shale gas production forecasting: Empirical studies of Barnett, Fayetteville, Haynesville, and Marcellus Shale plays," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
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    5. Gülen, Gürcan & Browning, John & Ikonnikova, Svetlana & Tinker, Scott W., 2013. "Well economics across ten tiers in low and high Btu (British thermal unit) areas, Barnett Shale, Texas," Energy, Elsevier, vol. 60(C), pages 302-315.
    6. Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 753-777.
    7. Ikonnikova, Svetlana & Gülen, Gürcan & Browning, John & Tinker, Scott W., 2015. "Profitability of shale gas drilling: A case study of the Fayetteville shale play," Energy, Elsevier, vol. 81(C), pages 382-393.
    8. Larry W. Lake & John Martin & J. Douglas Ramsey & Sheridan Titman, 2013. "A Primer on the Economics of Shale Gas Production Just How Cheap is Shale Gas?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 25(4), pages 87-96, December.
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    Cited by:

    1. Smith, James L. & Lee, Thomas K., 2017. "The price elasticity of U.S. shale oil reserves," Energy Economics, Elsevier, vol. 67(C), pages 121-135.
    2. Montgomery, J.B. & O’Sullivan, F.M., 2017. "Spatial variability of tight oil well productivity and the impact of technology," Applied Energy, Elsevier, vol. 195(C), pages 344-355.

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