A New Approach for Economic Evaluation of Horizontal and Vertical Wells in A Sensitive Formation

Abstract

Abstract Severe formation damage in horizontal wells has been frequently reported. Many theoretical works related to this subject have also appeared in the literature. This indicates that such damage is a serious problem that can considerably affect the economics of horizontal well applications. The purpose of this paper is to present a new approach for evaluating the economic advantage of a horizontal well as compared to the vertical well case in a sensitive formation. The new approach employs concepts of production loss analysis and the maximum cost ratio (MCR), respectively, to evaluate short and long term production and economic performances. MCR here is defined as the ratio of horizontal-to-vertical well drilling and completion costs arriving at the ratio of net present values of 1.0. Results demonstrate that, although production performance of a vertical well is generally more sensitive to formation damage, the production loss can be much higher in the horizontal well causing a considerable economic loss when converted to dollars. Based on the analysis of MCR, it is found that (1) the costs limit of a horizontal well is controlled by the degree of damage severity, permeability, and oil price and (2) MCR is well correlated with the standard economic criteria as well as the production performance. In general, the costs limit decreases with damage severity and oil price and as reservoir permeability increases. Overall, the approach proposed can be used as a valuable tool for the economic analysis and provides engineers guidance for optimizing the drilling and completion design when a horizontal well project must go on.