Three questions please about starting up new wells? Do operators start up production immediately after fracking, or is there a normal delay of days or weeks before production?
Does production & sale commence during flowback operations, while the flowback operator is separating and disposing frac sand?
Do operators delay new well start-up until after new year, to minimize ad valorem taxes? Texas counties assess property taxes as of January 1. If operator fracks wells in October, is there not a huge incentive to defer production until mid-January? Long laterals may produce 1/3 of lifetime oil in their first year.
Example. New well commences production December 2023. 2024 ad valorem tax assessment in January will assess value of 95% of lifetime oil. However, if same well started mid-January, there would be no 2024 ad valorem taxes, and the initial 2025 assessment would derive value on only 70% of remaining lifetime oil? Why would any operator start up a new well in November or December, if my thinking is correct?
TLDR answer: between 2-30 days is about average, depending on the type of completion and number of wells being completed, but could be a few months. Long answer: There are a few schools of thought on how long is ideal to wait between the last frac truck to leave and when to turn the well on, but generally the types of areas where they let the frac “soak” or intentionally delay turning on the well after fracking is not in the Delaware Basin. The main hold-up would likely be waiting for all the wells in a one-to-two mile radius to be completed since you’d want to maximize reservoir pressure in the immediate area for maximum ka-pow* of the rock (*not an official term). If a well comes online right before another well is frac’d in the area, you risk the producing well creating a local pressure sink and attracting the tip of the fracture (like water flowing downhill), and that can cause problems for both wells.
Note: On a larger scale, it’s the basis for the “parent-child” issue where older wells make the newer wells perform worse, even if spaced the same distance apart as any other well. Long-term production from a well creates a really big pressure sink that is hard (and likely impossible) to overcome in a way that won’t damage the efficiency of the new frac by stealing it’s thunder and cause a ton of water to hit the older well. But when you have two new wells you can just wait and avoid the problem altogether.
For clarity though, the frac operations itself is not the final step before the well comes online. If you had a camera on site, you’d see another rig (often a smaller “workover rig” which looks more like a derrick attached to a big truck, and/or a coiled tubing unit) come in and perform the cleanout and production installation. Many fracture operations require plugs to be drilled out, frac sand to be cleaned out of the immediate wellbore, and/or the production tubing and any artificial lift (gas lift, downhole pump equipment, etc) and other odds and ends that help keep the well chugging. These rigs are usually easier to schedule but I’ve had it happen where a well has to wait a few months just to get the right schedule of crews and equipment lined up. The delay between frac and first production is usually a metric the C-suite likes to track because 90% of the investment has been spent by then and investors are eager to start generating some cash flow ASAP. So there’s always emphasis on figuring out ways to get the wells online faster without increasing cost or reducing productivity of the wells.
TLDR answer: Usually, yes, but might be a couple weeks delayed in payment. Long answer: When the well starts flowing back, it usually produces a majority water the first day(-ish). Ideally, there’s oil and gas already starting to show in the fluids (1-10%) during this time but not always. This water is usually the frac fluids used to transport and place the sand downhole, but could also be formation water. Ideally, you don’t get ANY sand back during this time, but there’s usually some free sand floating around that will flow back with the water. Since you have nice, new separators and tanks for this new well, the operator might chose to produce into a different set of tanks and equipment better suited for handling lots of sediment until it gets under a certain threshold. The oil will still be skimmed off the top of the water but the gas might be flared during this time since they may not have a connection set up for the temporary equipment, or the gas might be used to gas lift or or run some of the equipment. Lots of options that depends on the type of well and location. The gas might also have contaminants like CO2 or Nitrogen used in the frac that they need to dispose of before the pipeline company will accept it. It may also take a while for that oil to be skimmed off the tanks, depending on the ratios and volumes happening. But I’ve usually seen production to be sent to the main separators and pipelines within a week or two, and no longer than a month usually. If the well is still making lots of sand after a week or two, they’ll usually just install a slightly more permanent sand separator with the normal equipment that’ll handle it until it calms down.
TLDR answer: No, not likely. Long answer: So…I’ve not once had this even mentioned in a discussion on well timing during the ~10 years I worked for a smallish company that (theoretically) was counting dollars, though I don’t put it out of the question that someone’s thought of it. Usually companies have January 1st reserves that are a key milestone, and you want as many wells as possible producing by that date so they can be considered PDP (proved developed producing) and risked as little as possible by investors for year-over-year metrics. Reserves based lending (RBL) and SEC reserves disclosures are considered way more valuable than any ad valorem timing games. But honestly, for as much as it affects royalty owners, it was WAAAAAAY down the list of priorities on the operator side. Ad valorem costs end up being ~2-3% of annual revenue for the well. Working on the 100’s of the other things that affect the bottom line usually end up eating up any free time people making those decisions have.
Wow Tracy, thanks for fantastic well completion explanation. Our operator will complete seven clustered 2-mile laterals in 4Q23, I’m guessing our taxable income timing. I know the fracking schedule but not “POP” (put on production). Surprising that operators aren’t concerned about timing or deferring ad valorem taxes, 2%-3% revenue it seems material. However, operator spends $90 million drilling seven wells in 2023, may not want to delay production 3 months to reduce ad valorem. Operators sometimes defer completion (Drilled Uncompleted, or DUC) due to low commodity prices, e.g., during the Covid pandemic, and this year with gas wells and sub-breakeven gas prices.
However, seems odd reserve reporting would impact decision to put-on-production in December versus DUC & defer to January. DUCs are reported as Proven Undeveloped, but not PDP. Both PUD and PDP are proven, and Wall Street analysts may inquire about DUC portfolio at quarter end. I’ve listened to many quarterly earnings webcasts, and analysts never probe SEC reserve disclosures except for an abnormally huge impairment charge … analysts focus on the number of wells budgeted & future years of drilling inventory. Personally, I do not find SEC-proscribed reserve disclosures very helpful.
@tracy_lenz Someone has to ask this: Have there been any lawsuits filed between oil and gas companies in regards to a well frack damaging nearby wells?
Of course, with so much happening below ground, it seems it would be pretty hard to prove anything in court other than logging circumstantial evidence of “before and after.”
FYI. I learned from operator, there will be little or no delay between frac & production on this particular development. Seven long laterals in a row, will be choreographed assembly line fracking & completion (my terminology), production commencing promptly (maybe two weeks), i.e., the first wells will start producing while the fracking fleet is still moving down the line fracking.
My summary FYI, based on info from operator. (1) Operator drilled seven 2-mile laterals in 7 months with one rig. (2) then 4-6 week period (probably infrastructure & pipes). (3) Fracking scheduled 7 weeks. (4) Apparently 2-week lag after fracking before turning on wells. (5) First wells in the row turn on week-5, final wells turn on week-9 after fracking commenced.
Surely, developments vary. Companies boast of Simul-Frac and Zipper-Frac efficiencies, and operators often hold wells as Drilled Uncompleted (DUC) for various reasons.