Well(ness) Spacing and Social Distancing Lessons for Leaders
As a leader, are you fully conscious of how impactful your words and actions can be on those who are closest to you, be they personal or professional connections?
Just as interference between neighboring wells has taught those in the oil and gas industry to be aware of the operational headaches caused by spacing wells too close together, the coronavirus has clearly shown us how easy it is to unwittingly spread harm to those around us, directly and indirectly leading to societal health, safety, and economic disruptions.
Through these two very real and relevant scenarios, this podcast challenges you to increase your understanding and awareness of how your approach as a leader can have drastic impacts—both positive and negative—on stakeholders and how asking some simple questions of yourself can be the difference between sustained success and getting knocked offline.
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TRANSCRIPT:
00:00
Hello and welcome to The Energy Detox, brought to you by Witting Partners. I'm your host, Joe Sinnott, and today we're merging two spacing-related themes to drive a discussion about building awareness of how you might be unknowingly impacting your stakeholders.
00:16
The first of these themes is the concept of "social distancing" that most of us probably hadn't heard of until a couple of weeks ago, but which is now perhaps the single most important thing we've been asked to do other than, of course, washing our hands for the length of time it takes to sing our ABC's or "Twinkle, Twinkle Little Star."
00:35
And the second theme is the idea of appropriate spacing between wells, a topic that has been getting attention for years, and which has really been even more in focus over the last several months as operators have tried their very best to figure out a way to get the most value out of their inventory. And while I doubt I need to define "social distancing" for anyone at this point, for those of you who are not familiar with horizontal well development, when we speak of "well spacing" throughout this episode, we're referring to the distance between two or more horizontal holes in the ground that—for simplicity's sake—you can think of as being parallel to each other. And the roles of these holes (or wellbores) that are thousands of feet—or in some cases, two or three miles—long is to provide a path for hydrocarbons to flow from the surrounding rock up to the surface to be sold for some (at current time) incredibly low price.
01:24
And the spacing between those wells is very important because when a company plans to develop a given area and to extract oil or natural gas from a reservoir, they decide how to arrange those wells to generate the most value from the reservoir. And if they plan out lots of wells close together, then they know that, overall, they can extract more hydrocarbons from the area faster, and that they're less likely to leave hydrocarbons stranded between the wellbores that they've drilled.
01:48
So a common analogy for the planning that goes into this is to think of well density in terms of sticking straws into a giant thick milkshake. Now I know that this analogy might come across as insensitive because nobody these days should, of course, be sharing a milkshake with anyone. But if you did assume the risk of sharing with others, you're at least going to want everyone else sharing it with you to use separate straws, right? And what's the impact of that? Well, you're going to drain whatever cup or glass or vessel a whole lot faster than if it was just one straw. And if you spent 10 bucks on the milkshake, you have arguably accelerated the payback period of that investment because everyone got to enjoy that milk shake a little bit faster than if you only had one straw and everybody had to take turns having a sip and sharing whatever germs they had.
02:36
But if I told you that each straw, though, cost $5...well, you're obviously going to rethink your strategy and aim for less straws, not more. And the same thought process from this attempt at an analogy goes on when we're talking about the oilfield and planning. It's the same balancing act between how many straws to put in and what the value is of doing that? Because when you're drilling and then eventually completing wells, it's very, very expensive. And if you're placing wells too close together, you eventually get to the point of diminishing returns where the cost of the wells don't justify accelerating production.
03:10
Even when commodity prices are far higher than they are now, there's a point where it just doesn't make sense to be too close to other wellbores. And at some point it doesn't materially increase the amount of hydrocarbons you're going to recover anyway from the area that you're developing. So the decision is often made to widen the spacing to a point where those economics make more sense, especially at lower gas prices, because doing so allows for a more sustainable and certainly less capital intensive approach.
03:39
But when you begin distancing your wells further apart, there does come a point when too much distance can cause significant destruction of the value of your assets. Because if the wells are spaced too far apart, you're now likely to strand reserves that you already paid to have the rights to extract, and you might never be able to recover them because of the risk and the complications of trying to go back later on and drill infill wells between those wellbores. So the goal with "well distancing" is to find that sweet spot that works best for your bottom line and for the long term sustainability of your operations. Because while you might not realize short-term harm from extreme "well distancing," you need to look at the long-term economic damage to your recoverable reserves, which not only impact your organization, of course, and the value of your company, but the landowners who will suffer from reduced production and, therefore, reduced royalty payments over time.
04:37
So what's the point? And why lean on this analogy now, when operators are far less concerned about perfecting their spacing strategy and well designs than they are about the much bigger picture of trying to simply stay solvent amidst our ongoing crisis (or crises)? Well, the point for today is that the reason that 2 wells spaced too closely together could be problematic is not just because they're both pulling from the same reservoir and competing for reserves. But it's because of interference issues and other harm that arises when wells are in close proximity and companies are not practicing safe—if you will—"wellbore distancing."
05:12
And while many folks in different basins and at different companies have largely figured out the impacts of well spacing so that they can plug different variables into their reservoir and financial models, the reality is that there are still unintended consequences that pose significant health, safety and environmental risks that might be more difficult to quantify.
05:32
For example, you might be completing a well you thought was far enough away from another. But you catch a natural fracture and knock a well a mile down the road offline. Or worse, you could pressure up a nearby wellbore more than expected and push the limits of whatever safety mechanisms are in place. And, for that reason, companies generally aren't complacent, and they closely monitor offset wells that should be far enough away, but that could be impacted if hydraulic fracturing operations down the road do unexpectedly influence the performance of those more distant wells.
06:04
So the point of laying out these operational considerations is to emphasize that it's not just the higher level, cookie cutter financial model scenarios that need to be looked at when considering the benefits of different wellbore distancing but other real and practical implications—both positive and negative—that need to be considered as well in order to make the best strategic decisions for all stakeholders.
06:27
Now we could spend hours getting more into the weeds on the reservoir, engineering, and science behind spacing. And there are certainly plenty of technical people out there who would happily share their knowledge about the impacts of parent/child relationships, which—for those of you who don't know—is an oilfield term that I won't define today and will, instead, leave to your imagination if you don't know what I'm talking about. But suffice to say some of the science and data and attempts to mathematically optimize well development can truly be a fascinating topic...but for another day.
Note: for more information on ‘frac hits’ and parent/child well relationships, click here.
06:59
Because the promise of this episode is to tie in the analogy of "wellbore distancing" and "social distancing" into the practical questions and thinking that you, as a leader, can use as you try to tackle the mounting challenges that the state of the energy industry and the complications of the coronavirus have caused.
07:14
So all that being said, what does any of this have to do with how you are trying to navigate your family or teams and yourself through these tough times? Well, it all ties in to the importance of and your awareness of the personal relationships and the personal connections you have with others...from colleagues and coworkers and managers...to friends and family and neighbors and anyone else you might interact with and with whom you might carry some influence.
07:41
And while you are obviously mindful of the tremendous headaches that your peers and neighbors and everyone are going through right now, and while you are no doubt helping in whatever way you can, it's as important as ever to understand when you might unintentionally be sharing and communicating with others things that aren't helpful or encouraging or uplifting right now. Because when you have such close relationships, and when you're working with people looking for hope or looking to validate their fears or concerns, it's very easy for there to be an impact, positive or negative that you, or perhaps even the other person, don't realize for some time in much the same way that well communication and production interference might not appear until months or years down the road
08:27
Because ultimately the purpose of not just this episode, but of The Energy Detox in general is to help you be more on guard against the ways in which you, as a leader—whether formal or informal—are unwittingly impacting and influencing your stakeholders.
08:48
So in the case of well spacing, most operational planning and technical folks...they know to ask themselves the right questions. And they know to ask their teams questions about the nearest wells so that they're ready for any issues that could arise so that they can put safety precautions in place. And, again, they can have their own people in the field asking those questions during drilling and during completions, and to be on guard to be aware. In many ways it's just like a lot of people today who are fortunately defaulting to asking their neighbors and their friends and relatives how they're doing to get by. That's the first thing on their mind, more so than than ever before, and again that's one of the the many things that a lot of people are very hopeful about...that people will continue to have that general concern and interest for their fellow man, even when there's no longer obvious challenges that everyone's facing. So what does this all mean?
09:42
Well, as you continue to ask yourself what impact the coronavirus and the energy industry collapse is having on other people, it's important to continue to ask yourself what impact—and not just negative impacts—but what impact might you be having on those around you, especially when that impact might not be terribly obvious...because the amazing thing we're all learning each day through some pretty good material out there…as far how these viruses can spread and how quickly they can spread and how we need to flatten the curve…the important thing that we're learning is again just how quickly it could happen and the mechanisms that can allow it to happen...and consistent with this conversation, how it could really all start unknowingly and before there any signs of trouble and before there are any symptoms.
10:36
How it could be passed on to person A and person A to B and B to C, etc. before anybody even realizes that any of those people are carrying anything that is troublesome. How many people are out there getting infected by people who didn't know that they were affected or were exposed to somebody else? It's a tremendous amount. So again, what's the point? How is this relevant for all of us trying to lead some area of our lives, especially a year or two from now when all of this is not as front and center as it is now.
11:09
Well, the point I want to get across today is that as leaders of families, of teams, of your neighbors, are you asking yourself what level of influence you're having as you get closer and closer and closer to those around you? Are you aware that when you're a direct manager—again, pretty close proximity, figuratively speaking—or when you're just someone who is looked up to by others, regardless of your title, if you're somebody that people have built up and said, "Wow, this person is a wealth of knowledge," do you realize in those positions that everything you say and do is being absorbed and scrutinized?
11:49
And certainly this is not a new concept, and I would imagine that anybody who scrolls through social media and follows some leadership and self-development things has come across things to remind us that we need to be self-aware and that—especially in leadership roles, including as parents—everything you're saying and doing is going to be absorbed. But the reality is that when you frame it in the context of what could be very costly well interference issues and, from a macro level, quite frankly, bankruptcy-inducing decisions to drill hundreds or thousands of wells too closely together...when you put it in that context where you might not realize what you've done until it's too late, my hope is that those in the oilfield can hold up this example as something to really remember as they move forward...and can hold up this example of well spacing as a good reminder of how aware you need to be when you are in close proximity (again, figuratively speaking) with your peers and with direct reports and with your family.
12:50
And, of course, if that wasn't enough of a reminder, the health implications of being spaced too closely together in this day and age should again remind us that we might be carrying and portraying something that we don't even realize but that can directly have long-term and serious impacts on others and indirectly influence untold numbers of people who interact with those who we interact with directly down the line.
13:14
It's crazy, from an "exponential growth that could happen from this virus" standpoint, but it'd be crazy to ignore the fact that we could do the exact same things with our thoughts and with our words, especially as leaders.
13:26
So, consistent with the disclaimer of The Energy Detox, where I promised that I would work in as many forced analogies from oilfield topics and current events as possible, I do hope that those who are spending the next several weeks knee-deep in trying to help their families, help their neighbors, help anyone around them survive...that, again, these concepts can remain as fresh as possible, even as things continue to change and even as—inevitably—the issues that we're facing today subside in one way, shape, or form.
13:57
And as always, I leave you today with a question and that question for today is:
Do you—in whatever leadership position you hold personally and professionally—take the time to ask yourself how your words and your actions may unwittingly be passing along ideas and opinions that you would immediately put a stop to if only you realized what you were doing and how quickly those ideas could spread to other people?
14:34
…and as you ponder that, please allow me, your grateful host, Joe Sinnott, to thank you sincerely for listening and for suffering through all of today's forced analogies, with special acknowledgement to those of you who right now are feeling the very real economic impacts of the extreme spacing we've been asked to practice, and, somewhat ironically, to those parents who find themselves in a state of inescapably close proximity to their beloved children who may be causing their own interference issues as the quarantine wears on.
15:02
And, finally, to learn more about The Energy Detox and our sponsor, Witting Partners, please visit us at theenergydetox.com, where we’d be happy to receive your feedback, your questions, and your suggestions on leadership topics you'd like to see blended into oilfield themes…or oilfield themes you'd like to see tied to leadership lessons on future episodes. Thanks again.