As operators continue to exploit the oil and gas resources of North America, infill drilling is increasingly becoming more commonplace in most active US shale plays. As a result, ‘well bashing’ is becoming a rising commercial and legal issue in the industry. Well bashing occurs when new wells, or ‘child wells’, are drilled in close proximity to already producing wells (‘parent wells’), at the same time that the existing parent wells are experiencing a natural reduction in their reservoir pressure. When the child well is fracked, it may impact the performance of both the producing and new well because fracking fluid from the new well naturally migrates towards the low-pressurised parent well as the fractures from the new wells connect with the old ones. This can damage wells beyond repair.
In those circumstances, public companies must report a revision to their recoverable reserves and the downgrade can affect their credit limits if their banks have linked their lending to proved reserves. The problem is compounded if litigation arises between two nearby operations. A 2017 court case demonstrated the financial damages well-bashing can create when a federal jury awarded damages of $220,000 to two Oklahoma oil operators who had reported well-bashing by a third-party oil company in 2015. The plaintiff stated that fracking near an existing vertical well caused irreparable damage when over-pressurisation occurred, completely destroying the parent well production. These damages were awarded in respect of an older, vertical well which was producing only modest amounts of oil from an old reservoir. The level of damages involved if a more modern horizontal well was affected could be significantly higher.
Despite the potential seriousness of the situation, there are a limited number of methods of prevention or damage limitation of well-bashing. In particular, the solutions offered by oil services companies have not been particularly effective so far in horizontal wells, which form the majority of new shale wells being drilled.
Highlands’ proprietary technology, DT Ultravert, has been successfully deployed in the Permian Basin in February 2018 where it was demonstrated to be effective in preventing well-bashing in horizontal wells. The reservoir pressure in the parent well was boosted by up to 400% and the elevated pressures were maintained above pre-treatment levels throughout the child well frack operation. When the parent well resumed production, Highlands demonstrated that the effects of well bashing had been minimised relative to neighbouring bashed parent wells. Furthermore, demonstrating DT Ultravert’s other potential use of enhancing frack results, new child wells fracked during the deployment significantly outperformed neighbouring child wells that were fracked without DT Ultravert.
Highlands presented these findings at the North American Prospect Expo (NAPE) conference in Houston in February and, since then, the management team has followed up with several oil and gas companies who have expressed interest in DT Ultravert. Whilst enthusiasm for the product has been significant, it is disappointing that, to date, orders have not followed.
It is clear to the directors that DT Ultravert has demonstrated its effectiveness. However, to convert its potential into revenue for the Company, further actions have been taken during 2018:
In Kansas, flow rates from the Barret 1-14B well increased to 2,581 Mcfpd over time, compared to the initial flow rate of 1,769 Mcfpd rate. At these indicative levels of production Highlands should be in a position to secure much of its nitrogen supplies for its DT Ultravert needs more economically, this being a principal reason for the investigation of this resource in the first place. By way of illustration, during Highlands’ previous deployments of DT Ultravert, nitrogen was purchased for a cost between $9.0 and $11.7 per Mcf.