Replies to This Discussion

Permalink Reply by jffree1 on May 9, 2013 at 2:48

TER: If the EIA's data are inaccurate, what information sources can investors turn to for reliable data?

BP: That's a tough question because it is very difficult to find independent information sources. The oil and gas industry funds a lot of these studies. MIT received money from Hess Corp.; Penn State has had controversy over its support from industry; Navigant Consulting has put out an industry-funded study. The Potential Gas Committee is also funded by the industry. Petroleum Geologist Art Berman has done some of the best work on shale gas productivity and decline curves—I cite him in my book. There are other sources out there, but they're relatively few.

That's where I stopped reading.

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Permalink Reply by Keith Mauck (Site Publisher) on May 9, 2013 at 2:55

Spawn of Berman!

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2013 at 2:58

Me too, jffree1.  For those members who do not know Mr. Berman you can find multiple discussions in the GHS archive.  Bottom Line - he and Mr. Porter are tilting at wind mills.

http://www.gohaynesvilleshale.com/forum/topic/search?q=Berman

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Permalink Reply by Mark Pomeroy on May 9, 2013 at 5:05

People want Berman to be wrong, therefore, he is wrong.  Anyone who makes predictions in the oil business is always wrong, prices being the most unpredictable.  But if you want to summarize Berman's point as reserves (in the Haynesville) were grossly overstated and costs (in the Haynesville) were understated, then he is correct.  My memory is that most operators were saying the average recovery from HA wells would be in the 5 to 6.5 BCF range.  I challenge anyone to load up PHDWin or Aries and all the HA wells, then draw reasonable decline curves that produce an average in that range.  USGS and LSU are not coming up with figures in that range and I am not either.

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2013 at 6:48

Mark, more than one HS operator almost certainly touted some inflated EUR projections.  However the major Haynesville players publicized rather early on that in their opinions EUR varied across their leasehold and indeed across the entire basin.  Some of the EUR pronouncements that many recall were limited to operators best rock.  Link to early EUR map by Petrohawk (this was a May 2010 discussion):

 http://www.gohaynesvilleshale.com/forum/topics/petrohawks-definitio...

If you review Mr. Berman's pronouncements in the early HS days, which you can do right here in the GHS archives, I think you will see that he cherry picked his data including all the early vertical completions and ignoring later horizontal completions.  You'll have to pick through replies by a number of layman members to find some very experienced industry members who exposed Berman's methodology.

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Permalink Reply by Mark Pomeroy on May 9, 2013 at 8:44

Here is a second try at a reply, hope it's not a duplicate:

What I remember most about Mr. Berman was his World Oil article that got him run-off.  There were a number of things I disagreed with, but with regard to HS, I would say there is value in being less wrong than others.  Just doing very quick Google, not wishing to spend too much time rehashing, I find his comments on the failure of the manufacturing model.  I see his comments of CHK using an excessively high b factor.

CHK clung to the 6.5 BCF figure far too long.  Eyeballing the Petrohawk EUR map, it doesn't look plausible.  You know as well as I the issues with getting individual well cumulatives, but my estimate is that, five years into the play, about one percent of the wells have cumulatives over 6 BCF.  Unless you want to argue the cumulatives are different, this does not bode well for a 6.5 BCF average EUR and even 4 is suspect, unless you want to cherry pick from the sweet spots.  Will there be 10 BCF wells, absolutely.  Will there be clusters of units that make 40 BCF, I have no doubt.

It seems to me that it is OK to be wrong about the HS, as long as people like what you are saying.  In any case, the horse died long ago.

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Permalink Reply by dbob on May 9, 2013 at 14:13

First off, I'm not sure many Haynesville wells have completely stopped production - the EUR is till to be determined, and in many cases will depend on how flat is flat, what tricks to stimulate old wells can be developed, and the like.  

The book is still being written on how to optimize the wells - adjustment in frac designs are still being made, advances in increasing lateral length are happening, and not all of the "Haynesville" is dry - see Andarko, Panola County. 

There is no doubt that the Haynesville looks a lot better when gas in $6/mcf - we've already produced in excess of 5 TCF of gas, and I'm willing to bet that less than 10% of available locations in proven areas have been drilled.  

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Permalink Reply by Mark Pomeroy on May 10, 2013 at 3:29

You are correct in pointing out that cumulatives are not the same as EUR and for many wells in many formations they are not remotely the same, but with these high rate, rapid decline wells, they produce most of the gas they will ever produce within the first few years of their life.  If you look at a well that has dropped to 5% or 10% of its original rate, it is virtually impossible to draw a reasonable decline curve that materially affects the EUR even if you have decades more life.  And it is for sure impossible to have economically significant remaining reserves.  I used cumulatives because cumulatives are not an opinion.  If HA wells were to average 6.5 BCF far more than 1% would have reached that cumulative by the nature of their decline.  Now that is an opinion, but one that is easy to defend.

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Permalink Reply by Skip Peel - Mineral Consultant on May 10, 2013 at 3:50

Mark, I'd like to hear your take on why so many major and mid-major energy companies have placed such an emphasis on unconventional plays.  Other than the differences in land costs, what makes for a long term economic reservoir?

Permalink Reply by Mark Pomeroy on May 10, 2013 at 5:01

Skip, I can't seem to reply to your reply, but you ask a whale of a question. I will have to over-generalize and speculate.

Conventional reservoirs are hard to find and just get progressively harder as the easier ones are discovered.The industry has made almost universal errors in calculating EUR and have compounded those errors by equating EUR and IP with profitibility, at least emotionally, underestimating costs and over-estimating price. But high IP's lead to high cash flow that leads to high stock prices that lead to large bonuses so I speculate that publicly held companies are more vulnerable to optimism than private ones. If you had promoted the Haynesville at 6 BCF, at what point would you want to tell management or your stockholders you were wrong?

Some horizontal well plays have worked and do work, others do not. The difference is the same as in conventional plays, factors like thickess, porosity, and permeabilty, well cost. We are far from fully understanding fractured horizontal wells, surprisingly enough. They have allowed us to expand the range of profitable plays, but perm and porosity are hard to beat. If you compare the Niobrara to the Bakken, I'll bet you will find the big differencess are perm, porosity, and pay thickness.

The bottom line is if your costs, taking into account capital costs, operating costs, time value of money, abandonment cost, etc., etc are lower than income, you are economic. A particular EUR or IP doesn't mean much, because there are so many other things to consider, not the least being product price. You can show me a well with a EUR of 20 MBBL and one with an EUR of 400 MBBL and I would not be able to tell you which was the better well based on that. At $6 to $7 an MCF a $10 million dollar, 3 BCF well may be quite good.

Permalink Reply by tc on May 9, 2013 at 3:17

T. Boone Pickens has an agenda and is dealing in the political arena so headlines are more important than absolute truth.

The 100-year supply story/fiction is all based on math assumption.  It assumes that in a 100 years we will never use more NG than today, name an energy source that we are using same amount as we did in 1913.  It assumes that price will stay high and go higher, so all underground supplies will be drilled.  So depending on your demand or supply number the number of years will vary.  With the pace of technology evolution, I personally wouldn't be surprised if in 100 years we are using NG for everything or nothing at all.

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Permalink Reply by dingojoe on May 9, 2013 at 10:52

Bill Powers became semi-famous back in 2010 or so on Seeking Alpha for having a worse prediction record than a broken clock.  Of course, he and T. Boone are guilty of the same thing, talking up their own book, but in the case of Powers, historically, it's been a really, really bad book.

Fun to see a Bill Powers sighting again though.

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