Conundrum with HS drilling
Chesapeake et al drilling for the HS have a real conundrum on their hands. They keep drilling at these low gas prices where they are losing $ for every well they spud. They keep drilling and increasing US gas production. This keeps the surplus growing, thus supressing prices. They think they must keep drilling to maintain production because of steep decline rates, and to prop up their stock price. What they are doing is giving the gas away at these ridiculously low prices , and going deeper in debt. I predict some of them will be forced to merge or face bancruptcy. The HS and others will be the energy saviour of this country when prices recover in the future. Even with the steep decline rate continuous drilling will maintain production. It will probably require $8.50 gas price to realize this. Royayty owners will eventually reap the rewards in the future. Unfortunately everyone in the gas business are giving their gas away at these prices. I wish I could shut my wells in, but I need the cash flow.
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Comment by CB on April 7, 2009 at 1:41
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$ and rate have the same effect. $10 gas at 5MMCFGPD=$5 gas at 10MMCFGPD.
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Comment by CB on April 7, 2009 at 1:38
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Most of the hedges are gone, they hsd a stop gap when prices went below $5.
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Comment by king john on April 6, 2009 at 15:00 -
i've been wondering the same thing. i understand companies have to keep volume high to off set the low prices which creates additional supply without any additional demand. i know a change in volume has a more dramatic effect than a change in price on my royalty checks. also i think many of the bigger players have hedged their gas so they are getting a better price than the current market value.
kj
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Comment by JB on April 6, 2009 at 3:38
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Yeah, in a way I'm glad they haven't drilled any new wells in our sections. I'm sure the O&G's budgeted for the drilling and didn't anticipate it being so low but I sure hate it for the mineral owners on these new wells that are giving it away for $3.
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