Returns to Shale Gas Well Completion and Production Practices with
Vertical vs. Horizontal Technologies: Efficiency, Conservation, and
Environmental Implications
Janie M. Chermak, Ph.D., University of New Mexico, 505-277-4906, jchermak@unm.edu
James W. Crafton, Ph.D., Performance Science, Inc, 303-445-9062, jcrafton@peformancesciences.com
Robert H. Patrick, Ph.D., Rutgers University, 973-353-5247, rpatrick@rutgers.edu
Overview
Shale gas has rapidly become a factor in the US natural gas industry. Reserves that were unrecoverable in
the 1990s have, through the advent of drilling and hydraulic fracturing technologies, become feasible. US
shale gas production has increased from less than 0.4 trillion cubic feet (Tcf) in 2000 to more than 4.8 Tcf
in 2010 (~23% of total US gas production). Shale gas reserves have the potential to alter not only the
market structure within the natural gas producing industry, but also the longevity and competitiveness of
the domestic US energy industry. However, in many cases the actual performance of shale gas wells has
been less than expected, with large production declines in the early periods of production, resulting in
substantially smaller ultimate recovery and higher than originally forecast costs. There are also questions
concerning the impact of hydraulic fracturing on water resources and the adequacy of regulations. These
issues have resulted in debates on a range of issues, including the best completion and production choices
for these wells.
This paper focuses on factors affecting early period production, including the characteristics of the well and
completion and production choices made by the producer. We begin with a development of a theoretical
model of capital investment and production, followed by an empirical analysis of completion and early
period production employing data from 111 shale gas wells. We find that not only are reservoir
characteristics statistically significant, but producer decisions are also statistically significant in the
productivity of these wells. The implications of these impacts on competitiveness in the industry, as well
as on regulation are explored.
Methods
We develop a theoretical model for optimal discrete capital investment, discrete completion, and dynamic
production of shale gas wells (using optimal control theory). From this, we develop an econometric model
and estimate a simultaneous system of early period cumulative production functions for vertical and
horizontal shale gas wells.
Results
Results indicate reservoir and completion outcomes have significant impacts that are consistent in sign
across the two technologies, but the magnitudes and probabilities of these impacts vary, sometimes
substantially so. The impact of completion decisions on cumulative production is highly variable, with
differences in early period production declines across the two well technologies. These results may, in part,
explain the downward trend in reserve estimates for shale gas, as there is uncertainty in the impact of
completion choices on early period production across the two technologies. A traditional tenant of resource
regulation has been conservation, yet we find some completion and production choices may in fact reduce
recoverable reserves. Further results and their implications include:
 Returns to fracture length are diminishing, there are tradeoffs in fracture length and cumulative
production.
 Returns to the number of stages with horizontal well technology are diminishing, there are
tradeoffs in the number of stages and cumulative production.
 Returns to proppant levels are diminishing in vertical well technology, there are tradeoffs in level
and cumulative production.
 Returns to proppant levels are likely negative with horizontal well technology, proppant levels
may be counterproductive.

A relatively environmentally benign additive (to enhance the flow of gas) is highly productive in
vertical and horizontal wells and outperforms traditional surfactants in horizontal wells.
Conclusions
Technological advancement has made economic production from shale gas plays viable. However, the
cumulative benefits and ultimate recovery from a shale gas well can be impacted by the completion and
production strategies utilized. We find substantial differences in the marginal impacts for vertical versus
horizontal technology shale gas wells that could ultimately impact the total recoverable reserves of the
wells. These factors result in heterogeneous production functions for vertical and horizontal wells and the
recognition that a “one-size-fits-all” mentality can lead to a sub-optimal outcome. Early production could
be improved through a number of controls or control parameters, but the value of these changes have to be
compared to the incremental costs of such. Our results also suggest that profit and environmental and
conservation goals may coincide to some degree, providing opportunities for the design of effective
incentive mechanisms. Further, given that discrete capital investments impact initial completion and early
period production, there are additional costs/benefits to understand over the longer term, hence longer-term
analysis is important.
References
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