Decline Curves: Barnett vs. Haynesville
The recently released Chesapeake report included Haynesville Shale decline curve data from the initial wells. I was surprised to see a steeper curve than the Barnett Shale data. I am interested in the reasons for the steepness of the HS production decline and feel that those who are about to be first time recipients of royalty income should be aware of the affect. It does appear that though the initial years' decline is greater, the HS curve is flatter over the productive life of a well. What formation conditions and/or production methods explain the difference and does the decline percentage correlate directly to royalty income?
Decline By Year:
1- Barnett - 56% HS - 81%
2 - " - 27% " - 34%
3 - " - 18% " - 22%
4 - " - 12% " - 17%
5 - " - 8% " - 13%
Decline By Year:
1- Barnett - 56% HS - 81%
2 - " - 27% " - 34%
3 - " - 18% " - 22%
4 - " - 12% " - 17%
5 - " - 8% " - 13%
Views: 1328
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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Snake. It is a mistake to equate the price of ng to that of crude oil. The significant difference is that crude is a global commodity (and priced as such) as it can be easily exported. NG is a "local" commodity as it can not. In the future, not soon, ng will be converted to LNG (liquefied natural gas) and become more transportable. At that time the equation will change. The decline curve of ng production in "tight shale" formations is a different condition than that of oil. In Saudi Arabia or elsewhere. The two do not correlate. And, IMO, misplaced optimism can cost a lot. It has already done so.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Historically that has been more a function of commodity trading and the Btu equivalency factor. The disconnect of the two is occurring as we observe. Widespread use of and demand for ng will be the final disconnect. To the benefit of ng.
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Permalink Reply by Les Bamburg on
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KB, sorry to disagree but in my opinion US natural prices "decoupled" from crude price around 2000. Prior to that time there was a lot of US demand that could switch between natural gas and fuel oil. For various reasons that fuel switching capability has all but evaporated and the linkage between the two commodities.
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Permalink Reply by Les Bamburg on
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KB, natural gas prices are driven by supply and demand. The floor is a function of two primary factors. First, the marginal cost of developing gas supplies in regions such as the Rockies, Western Canada and South Texas. Second, the marginal cost of generating power with coal.
The ceiling price for natural gas is a function of demand destruction (ie what natural gas consumption is shut down when prices get too high).
You may be interested in the attached graph that shows the historical relationship (or lack thereof) between crude and natural gas prices. - Attachments:
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Permalink Reply by Les Bamburg on
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Permalink Reply by Les Bamburg on
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SS, natural gas prices in the US are essentially decoupled from crude prices so the the two commodities move independently. This the reason Henry Hub is about 63% of WTI crude on an energy equivalent basis.
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Permalink Reply by Les Bamburg on
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SS, Henry Hub gas prices are likely to stay in the $6 to $8 per MMBtu range for the next few years so present value and cash flow requirements dictate producing HS gas rather than shutting wells in. Gas price outlook is primarily driving capital programs for O&G companies.
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Permalink Reply by Snake Stewart on
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I dare say that decoupled or not that N/G prices will arise from the near-dead as soon as oil picks up momentum and unleaded heads to $4 again. There may be programs in place to try and make them move independantly of each other but those programs arent working very well. As oil again starts hitting the highs, the need for N/G will again be more lucrative. (conspiracy or not)
The crazy gas prices this summer awoke a sleeping giant in N/G. Now they are trying to put her back to sleep.How else can current pump prices be explained. Greed of the sheiks may be a saving voice of reason for us all. They had no reason to increase production except to help our economy. What did they do ? Nothing! Now they are cutting production because crude prices are so low. Is it increasing demand ? Nope! People are sick and tired of watching others end up with all of their money.Watching as others shuck responcibility for their actions, yet nobody seems to care about the little guy.Well it looks like little guy is scared enough about our economy not to buy the big SUV that they have been dreaming of because there may or may not be a warrantee department to work on it and they dont want to pay $200 to fill the stupid thing up.
As a layman, I do not understand Henry Hub, nor do I really feel the need . There are too many other aspects of this business that I feel would better serve the time I have to devote to it. Not to mention the many that do, as yourself, that understand and have spent many an hour trying to translate for the needy people on this site. But I do understand everyday life.Whether or not fuel prices are going to stay down is a no brainer to me.Even tho I know nothing of commodities trading either. As supply of a finite material is deminished , it will become more scarce.As that happens it will drive the value even higher, until we no longer need it of course. That isnt rocket science. Just plain Jane common horse sense.
Yet we digress from the original question.
If the decline curves are true for the Haynesville, how can the proported values be true for future production ? If this is under a higher pressure and 6X bigger then the Barnett , with a greater percentage of recovery, why arent the decline curves supporting that data ?
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Permalink Reply by Les Bamburg on
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SS, HS is probably about 5 times BS (250 Tcf -vs- 50 Tcf) but this is due to area being 2.0X and recovery at 2.5X. The recovery percentage is about the same but the initial gas in place is much higher due to the depth and overpressure. Because the HS has a much higher initial well production rate than the BS, the same decline rate results in a higher ultimate recovery (Bcf).
The independent movement of oil and natural gas is not a function of programs but that the two fuels serve different markets. Yes, crude will remain in short supply and, in absence of slow global economies, will again move toward triple digits. Natural gas though is in oversupply in the US and will remain near current levels for the next few years.
The high natural gas prices this summer were not related to oil and cannot be explained by fundamentals.
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Permalink Reply by Skip Peel - Mineral Consultant on
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They do.
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Permalink Reply by VSC DeSoto South on -
NG prices this past summer were driven up by hedge funds, financial speculators and over-zealous traders. Hedge funds have been stopped in their tracks by the SEC.
Speculators are in hiding or treasuries or money market funds. They have left the building.
NG price have somewhat stabilized but there is a while to go.
NG demand in this country still needs to be ramped up, sooner rather than later, this would obviously help demand.
Oil was the same except the Saudis, Venuezuela, Brazil etc also had a hand in it in the run up.
Hedge funds have been stopped in their tracks by the SEC.
The overseas overlords of oil are now scared because our economy is in a tail spin.
Between the financial market influence of greed and the oil cartels coming back to their senses at least temporarily, we now have $50 dollar a barrel gas.
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I guess my main concern Gosh Darn, stems from the industy as a whole. If we are to inform ourselves , like nearly all of the O&G talking points,from infomercials to user friendly websites, say we should, dont we need to know the correct info ? Especially if the O&G's need to de-value or lands to make them even more profitable ?
The initial reports stated, and there have been several discussions on this site about it, that the formation itself would allow recoverables much greater then the Barnett. Yet if we follow the original curve it basically shows the life of a Haynesville between what, 7-10 years ? Because after that point , the wells wouldnt be viable anymore due to the huge loss in production. They would need to be shut in. Even under the higher pressure, there isnt enough time to recover the gas,with the decline, that is proported to be OGP.
Knowing all you can about something is the best defense against making a bad decission. As the doofuss that started SWAMO, I certainly have a huge obligation to family and friends. But more important then that, I owe myself. Because I have given these people, that have put their faith in the leadership group of SWAMO, my word that I would look out for their best interests, I feel more obligated then all of the bailout handout receiving peckerwoods combined. And that my friends is a lot!
I respect the opinions of everyone involved in this discussion,yet I still have to do whats best for me and mine at the end of the day. If I feel that there is something that could be used in the future against my cause and the rest of the mineral owners on this site, I have to question it. De-valueing your land is a biggie.Not saying Les or Skip are trying to do that.But it certainly could be used as such.That is all I am doing.Since I still didnt get an answer to my math question, I guess I will have to continue to ask until this ole hardheaded boy feels better about the answers. Thanks and have a good one.
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