Looks Like the Party Is Over (At Least for the Time Being)
My brother-in-law was in town from Houston over the weekend. He is a geologist who works deep water projects for Shell. He has been able to sit in on some forecast meetings for his projects and also on some meetings for various inland projects that he might start working on (none would involve any HS projects that Shell is currently involved with).
From the meetings that he has attended, it is his opinion that the industry as a whole is in for some rough times and could be so for an extended time period. He said that there have been numerous projects put on the shelf dust that have a high probability of success because the cost/profit ratio is out of whack and will get even more out of whack as the price of the product continues to decline. He does not see the price stabilizing any time soon unless there would happen to be the mother of all winters this years. Unfortunatley, it appears that global warming will make sure that this doesn't happen.
My family has yet to be approached about leasing our acreage. From the discussion that I had with my brother-in-law as to the cost associated with drilling a HS well, I am apprehensive that we will never be approached about leasing our acreage.
From the meetings that he has attended, it is his opinion that the industry as a whole is in for some rough times and could be so for an extended time period. He said that there have been numerous projects put on the shelf dust that have a high probability of success because the cost/profit ratio is out of whack and will get even more out of whack as the price of the product continues to decline. He does not see the price stabilizing any time soon unless there would happen to be the mother of all winters this years. Unfortunatley, it appears that global warming will make sure that this doesn't happen.
My family has yet to be approached about leasing our acreage. From the discussion that I had with my brother-in-law as to the cost associated with drilling a HS well, I am apprehensive that we will never be approached about leasing our acreage.
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Replies to This Discussion
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Permalink Reply by Les Bamburg on -
Harold, all natural gas sales pipelines in the US use a standard pressure of 14.73 psia.
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Permalink Reply by Les Bamburg on
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ON, the average calorific value for sales gas is ~ 1030 Btu per Scf. Therefor a natural gas price of $6 per MMBtu would be equal to ~ $6.18 per Mscf.
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Permalink Reply by Henry, Landowner on -
Les,
On Bloomberg, I hear some analyst say world oil reserves are declining at 6% per year, and drilling is not occurring to replace the declining reserves because of the low price. This would seem to indicate that at sometime in the future the price of oil will go up. If the price of oil goes up, will it effect the US price of natural gas?
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Permalink Reply by Les Bamburg on
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Henry, it is my opinion that world oil production is near its peak rate. When the global economy recovers and demand returns, oil prices will once again spike to the $100+ level. US natural gas prices are essentially decoupled from world crude prices and are more driven by US supply and demand. A recovery in the US economy plus the supply reduction related to fewer rigs should bring US natural gas prices (Henry Hub) back into the $6 to $8/MMBtu range. In the longer term, any new federal climate change regulations that penalize coal could push US natural gas prices higher.
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Permalink Reply by barneyfife on
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Drilling costs are high based upon higher prices for gas, until these costs come down and there is a decrease of gas in storage, you will not see much drilling. As a consequence of that, not much leasing. This may last for quite awhile.
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Permalink Reply by Henry, Landowner on
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What do you think Chesapeak will do about all the wells they need to drill within the next three years to hold their leases?
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Permalink Reply by Ronnie Lammons on
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so - forgive my ignorace if i missed the comment , but , Henry , exactly what is your take on this ? i for one hope that we will have a cold winter which will drive up natural gas prices , resulting in a renewed push and increase in leasing and drilling . am i just naive ?
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Permalink Reply by Henry, Landowner on
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Ronnie,
I do not know. I see where Chesapeake is having cash problems. I am sure they want to hold their leases. They said they would issue stock. It seemed they may offer stock to hold some leases. I own property in two section where Chesapeake has drill. The wells are waiting on fracs. I wonder if they are just holding the leases. I hope there is a cold winter and Chesapeake starts producing these wells.
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Permalink Reply by Henry, Landowner on
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It's 19 degrees in Columbus, Ohio right now. That is cold to me. I hope to be back in Louisiana soon.
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Permalink Reply by R. C. Kidd on
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The speaker at the Shale Expo "Mineral Rights 101" side meeting seemed to say that there are many companies in the gas industry who are strapped for cash. If the weather in the Northeast is cold enough, they will be able to make it through the winter, but if not, there could be a bunch of mergers and acquisitions before springtime. If Chesapeake is having cash problems - as large as they are - it would make sense that many of the others are as well. Speculating, part of the cash crunch could be the credit crunch, part of it due to all the spending to acquire mineral leases and develop wells, and maybe even part of it is propaganda to create stronger negotiating positions for the developers. Who knows?
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Permalink Reply by Two Dogs, Pirate on
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Chk stock dipped below $10 today, think it went to $9.84.
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Permalink Reply by Johnny on
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The party is over. We did see something we are not likely to ever see again in our lifetimes... $10k - $25k lease bonuses. I have been doing this for well over 20 years and the bonus payments were something I would have never predicted. There will be a day and time where $500/acre sounds like a good price, but probably not for a couple of years or so. It will take a long while for people to adjust.
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