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Impact of low prices on shale gas production strategies

We investigate shale gas drilling strategies during times of low oil and gas prices. Producers exhaust their high-productivity locations quickly in times of low prices, and then adapt their drilling practices to increase the inventory of commercially viable projects. Investment in a new well may be reduced relative to the cost of previously drilled wells in the same location (from now on, original wells) through closer well spacing, use of existing infrastructure, and, perhaps most importantly, use of fewer inputs (e.g., less water and proppant). Inventory of drilling locations is expanded through such infill drilling, which may or may not be economically viable on an individual well basis but which has the potential to increase area recovery and portfolio returns.

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JEL Codes: Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q24: Renewable Resources and Conservation: Land, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q35: Hydrocarbon Resources, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q41: Energy: Demand and Supply; Prices, D22: Firm Behavior: Empirical Analysis

Keywords: Shale gas, Production strategies, Resource recovery

DOI: 10.5547/01956574.36.SI1.siko

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Published in Volume 36, Adelman Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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