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Replacing equation (7) in equation (1), we can express Well spacing = 224 (acres)0.50 2360 ft (hexagonal)
NPV(W) as a function of W,
From equation (4), D = 0.245 p.a.
NPV(W)={365WQiV/[(365WQi/Np)+ln(1+i)]}-CW-Z
NPV(18) = 365 * 18 * 600 * 16 / [(365 * 18 * 600 /
(8)
14000000) + ln (1+0.10)] 2400000 * 18 30000000
Differentiating NPV(W) with respect to W and making it
equal to zero in order to find the maximum value of NPV(W) NPV(18) = 94.2MM$
Conclusions Appendix
Assuming that the ultimate primary recovery is independent of A. Details for deriving Np in equation (3) and PV (Np) in
well spacing, the optimum number of wells to achieve equation (5)4 :
maximum economic return can be estimated directly following
the economic method proposed by Muskat. It uses as The daily oil production rate Qt at time t is
independent variables the oil reserves, the initial oil
production rate per well (assumed to decline), the oil price Qt = Qi (1-D)t (a)
netted back to the well, the total present value cost per well
and the interest rate. The cumulative oil production Np from time 0 to time t
is,
Nomenclature Np = 365 Qt dt (b)
A = the productive area, acres
C = the present value of all capital investments per Np = 365 Qi (1-D)t dt (c)
well after income taxs effect, dollars
D = the yearly production decline rate, fraction p.a. Np = [365 Qi (1-D)t / ln (1-D) ] + C | t=t , t=0 (d)
df= a discount factor function associated with a
declining income, adimensional Making C=0 at t=0;
i= the interest rate or discount rate, fraction p.a.
Np = cumulative oil production during project life Np = 365 [Qi (1-D)t - Qi (1-D)0 ] / ln (1-D) (e)
(reserves), barrels
NPV (W) = the net present value as a function of the number Np = 365 [Qi - Qt] / [-ln (1-D)] which is equation (3)
of wells, dollars
PV (Np) = the present value of reserves, barrels The present value of oil production rate PVQt at time t is
Qel = the daily production rate per well at economic
limit, barrels per day PVQt = Qi (1-D)t / (1+ i)t (f)
Qi = the initial daily oil production rate per well,
barrels per day The present value cumulative oil production PVNp from
Qt = the daily oil production rate per well at time t, time 0 to time t is,
barrels per day
V = the oil price netted back to the well after income PVNp = 365 PVQt dt (g)
taxs effect, $/barrel
W = number of wells PVNp = 365 Qi {[(1-D)/(1+ i)]t } dt (h)
Wm = the minimum number of wells required to
achieve maximum oil extraction Np = 365 Qi {[(1-D)/(1+i)]t / ln [(1-D)/(1+i)]} + C | t=t ,
Wo = the optimum number of wells required to yield t=0 (i)
maximum economic return
Z = the present value of other investments not Making C=0 at t=0;
dependent on the number of wells after income
taxs effect, dollars Np = 365 {Qi [(1-D)/(1+i)]t - Qi [(1-D)/(1+i)]0 } / ln [(1-
D)/(1+i)]
References (j)
1. Craze, R.C. and S.F. Buckley: A Factual Analysis of the Effect
of Well Spacing on the Oil Recovery, Drilling and Production Np = 365 [Qi - PVQt] / -ln [(1-D)/(1+i)]
Practices, API (1945). (k)
2. Muskat, M. : Physical Principles of Oil Production, McGraw-
Hill Book Company, Inc. (1949) 810-904.
3. Tokunaga, H. and Hise, B. R. :A Method to Determine
Neglecting PVQt at economic limit, the present value of
Optimum Well Spacing, SPE 1673 (1966). cumulative oil production of W wells is
4. Arps, J.J.: Estimation of Primary Oil Reserves, paper
presented at the Petroleum Conference-Economics and Np=365 W Qi /-ln [(1-D)/(1+i)], expressed in equation (5)
Valuation, Dallas, Tex., March 1956
Transforming expressions:
365 Q V =F (l) Table 2 Sensitivity Analysis on Wo
NPV, MM$
-CG2W2 2CGHW + (FH- CH2)=0 (t) 50
40
30
Solving for W in the quadratic equation (t): 20
10
W=[2CGH-(4C2G2H2+4CG2FH-4C2G2H2)0.5] / (-2CG2) (u) 0
-10 0 5 10 15 20 25 30
N um ber of W ells
W = [ CH (CFH)0.5] / (-CG) (w) Figure 1. Plot of NPV(W) verses W by use of equation (8) in order
to determine the optimum number of wells W o by the traditional
way.
By replacing the expressions (l), (m) and (n) in equation
(w) it is obtained,
Table 1 NPV(W) vs W