Shareholder or stakeholder value is created in the oil and gas industry in multiple ways. This paper demonstrates that no single evaluation metric can be used to compare companies with dramatically different corporate strategies adequately. Strategies range from proving acreage to sell with a minimum number of wells and capital investment to maximizing long-term resource recovery. This concept is also of importance for non-operated partners to ensure their strategy and organizational capability are aligned with the operator.

We selected case studies from three basins and evaluated capital profiles, completion designs, and well performance results using publicly available data. The case studies include the single well evaluations of representative type wells.

The value metrics utilized to evaluate the various strategies include net present value, internal rate of return, discounted profitability index, payback period, and free cash flow generation. The results show that no individual strategy can maximize all metrics. Thus, an operator's objective value metric must be clearly identified before evaluating a potential strategy. Ensuring alignment across all stakeholders is also a necessity. Strategies that favor the best single well metrics may have a negative impact on some or all metrics that are maximized in a full field development scenario, while a strategy that maximizes resource recovery could have a negative impact on capital efficiency.

To our knowledge, no existing paper links the requirement of understanding corporate strategy to unconventional field development optimization. This work highlights the importance of having the interests of all stakeholders aligned in a field development design or optimization project. It also demonstrates the potential folly of apples-to-oranges comparisons among operators and their peers, if they do not share a common metric for defining value creation.


The primary purpose of our work in this paper is to address some of the business challenges that exploration and production companies face when trying to maximize economic returns from unconventional plays. These challenges can be categorized as follows-

  1. It is very difficult to accurately measure value that is created as a direct result of capital allocation due to the high degree of uncertainty associated with the cause-and-effect relationship of field development decisions on production. Acknowledging that there are many other variables beyond completion design influencing the economic outcome (e.g. geology, costs, market conditions and operating conditions), how can we accurately assess the specific value created by frac intensity?

  2. The business objectives at the corporate level are sometimes not clearly defined or aligned with those of individual technical teams within the value chain. As an example, completion teams are often tasked to maximize both ‘stages per day’ and ‘cost per lateral foot’; two common key performance indictors (KPIs). However, if the high-level corporate goal is to maximize net present value (NPV) of the asset, it is possible the objectives of the execution team conflict with the corporate objectives. A second example illustrating unaligned interests would be two companies entering into a joint venture (JV) agreement who chase different corporate value metrics.

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