Replies to This Discussion

Permalink Reply by Jeff on October 31, 2010 at 5:25

I agree that supply will decrease when drilling to hold leases is pretty much finished. At the same time more power plants will be using natural gas as a less polluting fuel for electric generation. Prices will eventually go up as the wells drilled decline in production. Simple supply and demand. More wells will be drilled to compensate for the drop in production. All of this is dependent on not having the next feeding frenzy in another shale play then the cycle of holding leases starts all over again. At what point does the price increase to the point where consumers are again feeling the pain of high electric bills and transportation cng fuel is taxed to death by states and feds looking to fill their budget holes on cheap gas?
See, I can be both optimistic and pessimistic at the same time. Boy am I confused.
I say enjoy your bonus and whatever royalty checks you get now because we don't really know how this is going to play out. I know that I am better off because of the development on our property and really looking forward to what may be to come. If we live long enough we all should see some very exciting stuff in the not so far away future.
By the way, What is up with Sonris? haven't been able to get in there in a couple of days.

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Permalink Reply by Jack Blake on October 31, 2010 at 6:52

Jack tried yesterday and couldn't get in either. Jack works with an Electrical Engineer who's college friend was one of the integrators who made the sonris program.

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Permalink Reply by Robert Duke on October 31, 2010 at 7:46

So I think everyone has commented on supply and demand issues, the monkey wrench that HBP throws into sanity with regard to supply and demand, and all the political issues and issues centering on jump-starting a NG-based transportation economy. So for me now, the two remaining issues are: 1) how much is this "gas factory" concept going to work to the detriment of mineral rights owners who are not centered over the "sweet spot", and 2) how likely it is that companies like Encana will continue to make substantial improvement in their fracturing methods, allowing them to extract a profitable ultimate recovery from some of these $9,000,000 holes they have that are apparently not sitting on the "mother lode" (did it move to San Augustine, or what ??? ;-)). I thought, in a comment on the RRP list regarding a low-producing well, that Encana (by word-of-mouth) was being relatively encouraging - of course, this may rate right up there with all the rest of the word-of-mouth that you get about whether you are going to get a well or how well it will do. On the gas factories, it looked to me like putting in 8 wells on a pad, the pad would typically span 2 units (so 4 wells per unit); there would still be move-onsite move-offsite economies combined with optimization potential if you only put in 1 new well per unit, 2 per factory, at a time, but of course there are issues around how you build up the shared infrastructure. And then finally, just how crazy are things going in the other plays, like the Marcellus? The point being, if the O&G companies don't get into a leasing frenzy, it would seem less likely we would see more HBP-induced overproduction. Everything I hear about the Marcellus is there is a lot of gas, but the potential for incredible grief from both state government and environmentalists (and maybe some folks that have had gas in their water wells for years preceding any drilling trying to extract a little cash from O&G companies - were not the first oil wells in the US up in PA - shallow oil?).
On SONRIS, it has to be a server croaked over the weekend, and cutbacks are sufficient they are not carefully monitoring it over the weekend - my best guess. On one of my several passes through LSU-BR I spent a couple of years taking care of machines back in the days of mainframes and big mini's - if one went down there, my phone would be ringing inside about a minute, any time of any day or night...

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Permalink Reply by P.G. on October 31, 2010 at 7:20

Would filling a cng auto with CNG at home (with centerpoint service), cost more than filling with an equivalent amount of gasoline in an gasoline powered vehicle considering they are charging $10/mm for ng?

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Permalink Reply by Robert Duke on October 31, 2010 at 8:17

Yes, I think this is a great point. I too have observed prices for NG from my utility in the range of $10-$12/mm over the last year. So if utilities are basically allowed to practically triple the price, that sort of goes a long way toward killing the price incentive, if not the carbon incentive. Seems like investing in a NG utility would be the way to go ;-) Does anyone out there in the industry have a good breakdown on oil vs. natural gas, per therm or whatever, as to the breakdown in production costs, refining costs, distribution cost and taxes? I tend to forget the impact of taxes on gasoline prices in this discussion, and presume that the states and feds are going to be pretty eager to insure that they get their road taxes from all this - just like diesel (which has offroad use like NG).

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Permalink Reply by essay on October 31, 2010 at 9:17

i think i'm doing this right, if anyone knows different i'd like to know... so one gasoline gallon equivalent (GGE) is about 127 cubic feet, which gives 7.9 GGE per mcf, using $12 per gives $1.52 per GGE. even at $15 per it's still only about $1.90.

i look for refined oil products to keep a faster pace than natural gas, to put it mildly.

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Permalink Reply by Robert Duke on October 31, 2010 at 9:52

Okay, but I think my point remains. I just looked up average gasoline tax in the US - $0.47/gal (up to $0.58/gal out west). If you are investing in a NG vehicle, you need to factor in that the government is going to come in at that level and tax you at some point. So if the distribution guys are doing between a factor of 2-3 markup, you really are not saving that much money, whereas if you look at what it is costing to get the gas out of the ground, it probably could be sold in a manner that would cut transportation energy prices in HALF (all rough figures, I know). So I don't know what price the CNG stations are coming in at, but if you are just pulling gas out of the line at your house, and they figure out a way to tax it, you won't necessarily be able to amortize your investment all that quickly. Seems like the prices for NG from the utilities need to come down substantially; maybe the $10-$12 reflects what they were having to pay five years ago? (and the tendency for consumer prices to move in one direction...). I do understand that gasoline is going to be going up from its current price, and that will have a big impact on relative economies; I am just thinking that if NG gets priced really competitively now (by the time it makes it to the "pump"), that can only greatly accelerate adoption.

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Permalink Reply by essay on October 31, 2010 at 12:10

honestly i'm not even sure what i pay for gas the bill's been about 20 bucks a month, but to me its a very relative issue in more ways than one. also figuring out the taxes is definitely going to be an issue, our state gov already knows that you can tax NG more than gasoline in this pricing environment and still save the consumer a little money.

personally i believe that a good bit of the acreage in the haynesville will be at least marginally profitable in the $5-6 range. somebody will find a use for this resource, and other profitable ones like it, and if not adopted as transportation fuel here it will eventually be exported in large quantities.

so obviously i expect our isolated national gas market to go the way of the dodo at some point, 5 years, 10 years, who knows. a while back somebody brought up the changes in how relative pricing for NG compared to crude has been completely squirrelly in the last few years, but i think my fantasy global market will do a lot to return that ratio to a more historical norm.

in louisiana half the artificially bloated cost of using natural gas as transportation fuel are already subsidized, what we really need are cheap conversions of existing vehicles, but the federal government by extension of the epa is in the way. over and over i've seen reports of conversions costing around 800-1200 total, obviously in less over-regulated parts of the world. remove all the bureaucratic and political barriers and the market will sort out the refueling issue in double time.

obviously i am a vigorous proponent of replacing as much foreign oil with as much american natural gas as possible, and transportation is the best way to do it. in the meantime we should have a massive nuclear power plant building marathon to secure reliable non polluting electricity for our futures, and perhaps a time in which more all electric vehicles can be used.

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Permalink Reply by benny688 on November 1, 2010 at 15:34

The situation is pretty much the same in Harrison County... In the summer of 2008 I got some amazing leases from Petrohawk, but they are too cash short to maintain them.
They have done a lot of joint ventures to try to keep the leases, but this isn't moving fast enough before the leases expire.

Ken Hatcher's post seems on target in that investors are rapidly losing patience with O&G companies that are constantly burning through cash and ruining their credit ratings by drilling themselves into bakruptcy.. Perhaps the influx of Asian capital will help.

GLTA Shalers

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Permalink Reply by VSC DeSoto South on November 2, 2010 at 5:12

I would hope we do not need to give more ownership to off shore entities. Isn't that just as bad as being hooked on foreign oil, being hooked on foreign wallets? I just find it hard to believe that there are no more industrialists or ultra rich in the USA. I guess I may be dreaming again. I hope not.

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Permalink Reply by benny688 on November 2, 2010 at 14:35

Well, Petrohawk (HK) announced3Q earnings today and no one is happy.

The conference call seemed to be about Floyd trying to do damage control .

Main point is that they will reduce rig count on the Haynesville by almost 50% and try to get better margins on the Eagle Ford.

GLTA shalers

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