HOUSTON (Dow Jones)--Natural gas producers are choking back production from wells in the Haynesville Shale, a prolific natural gas-bearing rock formation in Texas and Louisiana, as a way of boosting the overall efficiency and life span of those wells.
The technique represents an important shift in the exploitation of gas from the dense sedimentary rock formations known as shales. Frenzied development flooded the natural gas market last year with, shale gas and the recession cut deeply into natural gas demand, pushing prices to a 7 1/2-year low last September. Now more measured growth from shales could help mitigate future gas gluts and allow for more orderly development of these gas-rich assets.
The progression could help support a recent upswing in prices, which have more than doubled from last year's lows due, in part, to the prospect of hot summer weather, which increases demand for gas-fired electricity, and a busy storm season, which increases the potential of supply disruptions.
Natural gas producers such as Petrohawk Energy Corp. (HK) and Devon Energy Corp. (DVN) have begun limiting initial production from their Haynesville wells. Petrohawk has cut its average initial production rate in half to about nine million cubic feet of natural gas a day. The Houston-based energy company will constrain production on all 110 operated wells it drills in the Haynesville shale this year, ultimately increasing the life and output of each well. However, the company hasn't yet provided an indication of how much more gas each well will eventually produce.
"Production management practices are one of the efficiencies to be gained in the development of an asset, and it's the one we are focused on at this time," Joan Dunlap, vice president of investor relations at Petrohawk, said in an interview.
Shale gas wells can produce huge amounts of gas initially, but the wells decline quickly. In some cases, the rate of production can fall by 80% or more in the first year. The rapid decline rates require producers to drill more wells to keep up the pace of production. Shale wells involve drilling into the formation and then sideways through the rock. A mixture of water, sand and chemicals is then injected into the well under high pressure--breaking the rock apart and releasing the gas trapped within.
By choking back the well, producers are extending the life of those fractures, which will close more rapidly when gas is produced at higher rates.Shales are a relatively new source of natural gas, and big initial production rates were commonplace as these companies attempted to understand the formation and demonstrate the worth of their assets to investors.
Greg Kelleher, senior vice president of Devon Energy Corp's (DVN) southern division, said the company has been experimenting with producing gas at lower initial rates as part of evolving practices at its East Texas Haynesville acreage.
"We are trying to optimize the reservoir," Kelleher said, noting that the company is trying to come up with the best "economic case" for the Haynesville shale. Devon will drill as many as 30 shale wells in the Haynesville area this year.
Companies have used other techniques to slow production from these fields such as drilling wells without completing them so they can bring production online at a later date and, perhaps, at better commodity prices.
"Producers are starting to think about using these producing assets as a surrogate for storage," said Rusty Braziel, managing director for BENTEK Energy, which tracks energy-market data. Braziel notes that these techniques have an added advantage of allowing companies to manage through volatile swings in natural gas prices.
-By Jason Womack, Dow Jones Newswires; 713-547-9201; email@example.com