I found this statement to be the most interesting food for thought......
Mr. Smead noted that an important factor to remember is that much of the unconventional gas, particularly shale, "is in formations where the certainty of success is very high, so that if a producer holding a number of leases delays development, nothing is lost long-term. The gas will simply by developed and produced when the market says it's needed." ....patience is a virtue...


Natural gas producers see cutbacks in drilling
Glut Hits Market

Carrie Tait, Financial Post, With Files From Reuters
Published: Wednesday, October 01, 2008

CALGARY - Flashy unconventional natural gas plays attracted considerable excitement this summer, but observers -- as well as the largest U. S. natural-gas producer -- now expect drilling and spending plans to be axed as new discoveries are resulting in a glut of gas hitting the market.

Unconventional plays in British Columbia's Horn River and Montney areas, as well as developing shale plays in the United States, could be at risk. Potential supply, bolstered by established shale plays such as the Barnett in Texas and undeveloped spots like those in B. C., is outpacing demand.

Shale gas is contained in difficult-to-access reservoirs that require special completion, stimulation or production techniques to get the gas out of the ground in economic quantities.

"The development has been so rapid that it probably overran the market a little bit," said Richard Smead, project manager and co-author of a recent report, North American Natural Gas Supply Assessment, prepared by Houston-based Navigant Consulting Inc. for the American Clean Skies Foundation. "Right now we have enough supply. We probably have more than we need in the short term."

The result, he says, will be a slowdown in exploration and production in unconventional North American shale plays.

A giant has already fallen victim: Oklahoma City-based Chesapeake Energy Corp., the largest producer of natural gas in the United States and a major shale player, last month cut its drilling budget by 17% through 2010, and reduced its production growth forecast.

"While we may be the first, we will certainly not be the last," Aubrey McClendon, chief executive, said on a conference call on Sept. 23.

It doesn't make financial sense to produce gas at certain wells when prices dip below US$7.50, he said.

"If those prices stay out there for very long, the industry will have to restrict its capital expenditures."

Natural gas closed yesterday at US$7.44, up US22¢.

One Calgary-based banker said: "Chesapeake certainly has to be, if not the poster-child, then close to it, for being early into shale gas and also aggressive managers of how they do that.… They have definitely cut some capital expenditure out of their shale just because of the prospects of lots of gas coming on in the next few years."

In June, onshore drilling in the lower 48 United States, boosted by shale gas plays, churned out 50.6 billion cubic feet (bcf) per day, Mr. Smead said. By comparison, in the eight months preceding Hurricane Katrina in 2005, both onshore and offshore drilling combined to produce less energy --50.5 bcf per day.

The Barnett Shale in Texas, one of the more developed plays, illustrates the massive growth in shale gas production. In 2007, it produced 3 bcf/d, up 3,000% from the 94 million cubic feet per day it produced in 1998. Shale plays in Fayetteville in Arkansas, Haynesville in Louisiana, and Woodford in eastern Oklahoma, are all showing similar signs of ramping production, Mr. Smead's firm said in its report. Marcellus, which spans parts of Pennsylvania, New York and West Virginia, will be next.

Two key technological advancements have propelled the rapid growth in unconventional gas plays: horizontal drilling and multiple fracing. But they are expensive. It costs between US$4-million to US$7-million to drill a horizontal well in shale, while a vertical well can be drilled for about US$1-million to US$2-million, Mr. Smead said.

Mr. Smead noted that an important factor to remember is that much of the unconventional gas, particularly shale, "is in formations where the certainty of success is very high, so that if a producer holding a number of leases delays development, nothing is lost long-term. The gas will simply by developed and produced when the market says it's needed."

With natural gas prices dropping -- they are off 29% since March -- another Calgary-based banker expects companies will have to go back to the drawing board.

"That stuff just doesn't work when gas is at $5.75," he said, noting it is cheaper to drill in the Barnett and Haynesville than it is in the new unconventional plays in Canada.