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Drillers' new techniques, experience cut well costs, boost yields

| Sunday, March 22, 2015, 9:00 p.m.
A drilling rig on Range Resources Corp.'s Kendall well pad is visible across farmland in Bulger, Friday, March 20, 2015.
Keith Hodan | Trib Total Media
A drilling rig on Range Resources Corp.'s Kendall well pad is visible across farmland in Bulger, Friday, March 20, 2015.
A drilling rig rises on a hillside near Bulger in Washington County.
Keith Hodan | Trib Total Media
A drilling rig rises on a hillside near Bulger in Washington County.
A drilling rig on Range Resources Corp.'s Kendall well pad rises above the terrain in Bulger this year.
Keith Hodan | Trib Total Media
A drilling rig on Range Resources Corp.'s Kendall well pad rises above the terrain in Bulger this year.

Ray Walker often invokes a favorite saying when asked how shale gas companies can increase production by 20 percent or more while cutting spending on drilling by more than 40 percent.

“The rock rules,” said Walker, executive vice president and chief operating officer at Range Resources Corp., repeating a phrase he used during the Fort Worth-based company's most recent earnings call.

“When you're in the core ... of a play, that means you have the best rock, and the best of all those technical things that make the rock produce more,” he said.

With natural gas prices at their lowest levels since 2012, companies need to squeeze more gas from that rock in the Marcellus and Utica shales, and do it more cheaply. By focusing on drilling in core areas with improved technology and demanding cheaper rates from contractors, they say they can meet production goals during the spending crunch.

“It's really related to efficiencies and connected to having more experience,” said Mike Endler, vice president and Appalachian regional manger for State College-based Rex Energy.

Two Range wells illustrate the strategy.

A little more than a year ago, Range returned to a Marcellus pad where it had five producing wells. It drilled two more wells with longer horizontal lengths and used a fracturing technique — called reduced cluster spacing, or RCS — that increases the amount of perforations in the shale, to release more gas.

In their first year, the wells produced 53 percent more gas per foot than the older ones on the same pad yielded in their first year. And despite the longer laterals, the new wells cost $850,000 less each.

“We made a lot of technical improvements in the way we target, exactly where we place that lateral in the rock,” said Walker, who declined to identify the well pad's location.

The cost savings occur in using existing pads and access roads, and reducing the time it takes to prep, drill, frack and complete a well.

“We've just gotten better over the past two years,” said Walker, whose company is Pennsylvania's most prolific driller and third-largest shale gas producer with 773 wells.

Rex is No. 17 on the list of shale producers in the state with 117 producing wells. Like Range, though, it's looking to increase production while cutting capital expenses this year by more than 40 percent.

It's using a combination of more sand, longer laterals, better drill bits and less time at the wellhead.

“We've been doing this for over five years now. Our contractors have 50-plus well pads under their belts. That lowers costs,” Endler said.

Operators pay for drilling rigs and many contractors on a per-day basis. More experience with the Marcellus shale and Western Pennsylvania topography, relying on existing infrastructure and better techniques cut those days and the resulting cost.

Five years ago, drilling a Rex well took 20 to 25 days. A year ago, its contractors had it down to 16 to 18 days. Endler said drilling a 5,000-foot lateral now can be done in two weeks or less.

That has helped cut the average cost of a Rex well in and around Butler County to $5.5 million from $5.7 million just a few months ago, CEO Tom Stabley told analysts last month.

That price cut comes despite the fact Rex is using more sand in the fracturing process to prop open more cracks in the shale. Last year, Rex used an average of 1,800 pounds of sand per foot of lateral when fracking a well. This year it brought online four wells on its Powell pad in Penn Township in which it used 2,300 pounds per foot.

The Powell wells are producing 9.3 million cubic feet of gas per day, 13 percent more than what the company reported from its new wells in July.

In addition to spending less time drilling and fracking, producers have gotten contractors to lower daily rates that Walker said grew from 2011-14, as demand for service crews outstripped the number of firms.

Since December, Range cut its well costs by more than 23 percent by negotiating lower rates from contractors, who are finding less work as companies dial back drilling.

Endler and Walker made it a point to say the companies are not cutting corners on safety to cut prices.

“Range is actually stepping up its efforts when it comes to working safely and protecting the environment,” Walker said, noting that accidents, spills and other incidents can hurt the bottom line. “In 36 years, I've learned if you can keep production online ... that is going to drive you to be a low-cost producer.”

David Conti is a Trib Total Media staff writer. Reach him at 412-388-5802 or dconti@tribweb.com.

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