Shell’s new approach vindicated with ‘sweet spot’ discovery

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As it refocused its attention on its core North American shale assets, Royal Dutch Shell has been rewarded with a success in the Utica shale. The company has announced that two wells it drilled below Tioga County are producing at levels comparable to the most successful wells in Southeastern Ohio.

The Gee and Neal discovery wells extend the sweet spot of the Utica formation beyond Southeast Ohio and Western Pennsylvania, where previous discoveries have been located, and into an area where Shell holds a major leasehold position of approximately 430,000 acres.

The Gee well was drilled over 100 miles to the northeast of the nearest horizontal Utica producer, and had an initial flowback rate of 11.2 million cubic feet of natural gas per day. Gee has been on production for nearly one year. Shell began production of the Neal well in February, with observed peak flowback rates of 26.5 million cubic feet of natural gas per day.

“This successful discovery is the result of solid technical work in our onshore business” said Marvin Odum, Shell’s Upstream Americas Director. “Last year, we refocused our resources plays strategy to select fewer plays with specific scale and economic characteristics to best suit our portfolio. The Appalachian basin is one of those areas, and these two high-pressure wells both exhibit exceptional reservoir quality.”

Speaking on the 2nd September at Columbia University’s Center on Global Energy Policy in New York, chief executive Ben van Beurden explained the company’s changing attitude to shale exploration.

He said that initially the company was slow to recognize the shale boom last decade before it began spending heavily to acquire acreage. This included paying $4.7bn for 650,000 acres in the Marcellus shale in 2010 and more than $1bn for leases in Texas’ Eagle Ford shale.

But the purchases required additional spending on drilling and development in short order, costs that led Shell to reassess its US shale holdings completely last year. This lead to a $2bn write-down in North American shale and plans to sells hundreds of thousands of US acres.

“The speed at which we had done it and the volume has been giving us a bit of indigestion to be quite honest,” van Beurden said of the company’s shale build up. “You can be too greedy and too hungry when it comes to looking at opportunities.”

Asset sales have helped the company narrow its focus on fewer projects where Shell can better compete with the smaller oil and gas companies that have dominated US shale development, he said.

“It’s a different type of game but it’s not best left to the independents. We can play and win at it as well,” he said.

The recent discoveries seem to have vindicated Shell’s cautious approach. In recent months Shell pulled out of exploration in Saudi Arabia, as well as sold its stakes in shale fields in  Wyoming, Louisiana, Western Pennsylvania, and eastern Ohio.  It is also in talks to sell the Haynesville shale gas field in Louisiana to Blackstone Group.

The company is currently awaiting results from four additional Utica wells drilled in Tioga County, and anticipates those wells will produce later this year.

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