CHAPTER 5 HORIZONTAL DRILLING -- THE CHANGING ROLE OF TRADITIONAL CONSERVATION PRINCIPLES

• Jurisdiction: United States

Federal Onshore Oil and Gas Pooling and Unitization II
(Jan 1990)
CHAPTER 5
HORIZONTAL DRILLING -- THE CHANGING ROLE OF TRADITIONAL CONSERVATION PRINCIPLES
John W. Morrison
Fleck, Mather, Strutz & Mayer, Ltd.
Bismarck, North Dakota

I. INTRODUCTION

Horizontal drilling, while hardly new in terms of concept, has generated considerable excitement in the oil patch during the last half of the 1980's and promises to change the face of the industry as it moves toward the twenty-first century. The technology has been declared to be a 50-year advancement in the petroleum industry, comparable to the development of the semi-conductor in the electronics industry.¹

As the technique has been introduced to the Rocky Mountain states, previously uncontemplated questions have arisen in the regulatory arena and innovative answers to some of these preliminary questions have been developed by operators and regulatory officials.

This paper will first briefly describe the technique of horizontal drilling and trace the history of its use in the Rocky Mountain region. Some of the unique conservation problems and their preliminary solutions will be identified. Finally, this paper will discuss the role of pooling (or communitizing) and unitizing of federal lands in the development of a horizontal play.

II. OVERVIEW OF HORIZONTAL DRILLING

A patent related to the drilling of a well with a 90° turn under the surface was first issued almost 100 years ago. In 1891, a patent was issued to J. L. Addison for a "groove cutting machine" intended to expose more reservoir rock to a well bore. A patent application was made by Bernard Granville in 1919 for a drilling apparatus to drill horizontal wells. Ten years later, the first successful horizontal hole was drilled in Texon, Texas.²

Until the mid 1980's however, the technology was in a state of infancy. In 1978 and 1979, Esso Resources Canada drilled horizontal wells in Cold Lake and Norman Wells.³ Elf Aquitaine drilled its first horizontal well in the Rospo Mare Field in Italy in 1982.⁴ The first "medium radius" test well was drilled by ARCO in 1985.⁵ However, a survey conducted and reported in a trade journal indicates that between 1978 and 1984, only one

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horizontal well was drilled in each year, with four wells being drilled in 1985.⁶

Since 1986, however, the level of horizontal drilling activity has increased dramatically. In 1986, at least 28 horizontal wells were drilled in locations ranging from the Javac Sea in Indonesia to Prudhoe Bay in Alaska and to onshore projects in France, Canada, and Texas.⁷ Horizontal drilling arrived with a splash in onshore United States and the Rocky Mountain region in late 1987.

Meridian Oil, Inc. ("Meridian") completed its 33-11H well in North Dakota's Elkhorn Ranch Field in November, 1987. The 33-11H well was drilled horizontally a distance of 2,603 feet at a true vertical depth of 10,420 feet, with an initial producing rate of 258 barrels of oil per day.⁸ Meridian's first horizontal well, as well as most of the subsequent horizontal wells in the Williston Basin, was drilled in the Bakken formation, which is considered to be the primary source rock for the entire Williston Basin.⁹ The Bakken is a relatively thin unit ranging from a thickness of 2-4 feet at its depositional limit in the Basin to a thickness of 145 feet in Mountrail County. Generally considered to be either Lower Mississippian or Upper Devonian in age,¹⁰ the Bakken is traditionally divided into an upper shale, a middle siltstone or limestone member, and a lower shale member.¹¹ Porosities usually measure below 5 percent and permeabilities of less than 0.2 millidarcies are common; production occurs as a result of a system of macrofractures and microfractures formed as a result of mechanical and hydrostatic stress.¹²

Between November 1987 and December 8, 1989, thirty-two horizontal wells have been drilled and completed in the Bakken formation in North Dakota.¹³ Although drilling to date has been concentrated in a northwest to southeast trending "fairway" located in portions of Billings, Golden Valley and McKenzie Counties, North Dakota, near the outcropping of the upper shale member, the Bakken shale is prevalent throughout most of the Williston Basin in North Dakota and extends into Montana, Saskatchewan and Manitoba.¹⁴ Operators have recently announced plans to drill horizontal wells in Mountrail and Williams Counties, North Dakota.¹⁵ On November 9, 1989, the Montana Oil Journal reported that 42 horizontal wells had been drilled or were currently drilling in North Dakota, one had been drilled in South Dakota, and eight in Montana.¹⁶ These numbers included one abandoned well in the Mississippian Madison Ratcliffe formation, one dry hole in the Ordovician Red River formation, and one dry hole in the Silurian Interlake formation. However, of the 43 wells which had been drilled or were drilling in the Bakken formation, only two were reported to be dry holes and one temporarily abandoned. Initial production rates were reported

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between 45 barrels of oil per day and 443 barrels of oil per day. The 33-11H MOI, Meridian's first horizontal well, had produced a reported 183,579 barrels of oil through August, 1989.¹⁷

Interest in horizontal drilling is not limited to the Williston Basin. Several companies, including ORYX Energy Company ("ORYX") and Meridian, have been actively developing the Austin Chalk formation in the Pearsall and Flying W Wolfcamp Fields in Texas. ORYX's Heitz No. 1 well in the Pearsall Field is reported to be capable of producing 3200 barrels of oil per day.¹⁸ Horizontal drilling is also occurring in the Niobrara formation in central Colorado and the Ellenburger formation in West Texas.¹⁹ Development is anticipated or predicted in the Mesa Verde formation in Colorado, Wyoming, the Twin Creek and Nugget Formations in Wyoming, and the Hunton and Arbuckle Limestones in Oklahoma.²⁰

The surge in activity has not escaped the attention of the business community. U.S. News and World Report cites a Dallas consultant as predicting that horizontal drilling could result in an additional $175 billion of expenditures in the petroleum industry over the next 15 years.²¹ In May, 1989, an article in Forbes predicted that the 200 horizontal wells drilled in 1988 would be doubled in 1989 and predicted that by the year 2000, 25% of the 50,000 wells drilled each year in the free world would be horizontal.²² Salomon Brothers is reported to have recommended the purchase of ORYX stock and has increased its estimate of the company's value by $11 a share, due mainly to the company's horizontal drilling program.²³ An exploration and production perspective entitled "Horizontal drilling Unlocks the Bakken Shale," distributed by the investment banking firm of Petrie Parkman and Company, estimates that Meridian could eventually develop net reserves of 200 million barrels of oil equivalent and double its total oil production as a result of Bakken development, and also predicts that such companies as Amerada Hess, Maxus and ORYX would have "meaningful exposure" if the productive limits of horizontal drilling are extended to the north.

The key to continued horizontal drilling lies in the economics. One company active in the Williston Basin runs economics showing that a horizontal Bakken well, while requiring an investment nearly double that of a vertical well, will payout in two years, instead of 6.3 years for a vertical well, and will yield a rate of return of 51.4% and return on investment of 1.65 as compared to a 15.9% rate of return and a 1.15 return on investment for the similar vertical well.²⁴ Another company estimates that as a result of experience gained through the drilling of horizontal wells, the average cost can be cut from $1.3 million, on the basis of 45 days of drilling time, to $1 million on the basis of 30 days of drilling time.²⁵

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As its name implies, horizontal drilling means drilling a well bore on a horizontal plane as opposed to a true vertical plane. A model rule which has been and continues to be considered by the Interstate Oil Compact Commission Council of State Regulatory Officials defines a "horizontal drainhole" as "the portion of a well bore drilled laterally into a common source of supply for production or injection purposes." This definition has been adopted by at least one state.²⁶

However, there are certain similarities between horizontal drilling and drainholes drilled from a vertical shaft and directional wells drilled to reach bottomhole locations that cannot be reached from a surface location due to topographic or environmental considerations. To distinguish these concepts, it has been suggested that horizontal drilling be defined as "high angle directional drilling of boreholes with lateral penetration through productive reservoirs"²⁷ and it has also been suggested that a true horizontal well requires penetration of the reservoir at a minimum angle such as 80°.²⁸

Once a definition of horizontal drilling is agreed upon, it is generally agreed that three separate and distinct drilling techniques are involved. Long radius drilling has an angle build rate of 10° per 100 feet or less and a curvature radius of 600 feet or more. Medium radius drilling generally involves a build rate of approximately 20° per 100 feet and a radius of 300', although the term has been defined as including a range of build rates between 10° and 30° per 100 feet and radii of 200 to 600 feet. Short radius wells build 1 to 3 degrees per foot within a radius of 20 to 30 feet.²⁹

Numerous potential applications for the technology have been identified. These include:

1. Reduction of water and/or gas coning by drilling high or low on structure into oil bearing zones;

2. Interception of more fractures in vertically fractured reservoirs with low matrix permeability and porosity;

3. Penetration of productive reservoir in irregular formations where...