This is some additional info from Austin's coverage of DUG2009. I wanted to be sure to get it posted. Keith "Haynesville"

The Cost Hurdles of Unconventional Gas
Speaker: Sabash Chandra, Managing Director, Jeffries & Co.

-Removing shale oil and gas is not an easy task. There are several variables that an operator must consider when making decision on the economic viability of an unconventional play. Below, are listed some of the accepted “truths” of each of the major shale plays in the US.

Accepted “truths” of the Haynesville Shale
-Best wells economical at $4.50 gas
-Core area is mainly, if not specifically, NW Louisiana
-Decline rates are greater than any other shale play
-No way to establish a meaningful position organically, only through Joint Ventures or acquisitions

Major “unknowns”
-Homogeneity – does it spill into E Texas, if so, how deep?
-Thus far, East Texas Haynesville wells outside of Southern Harrison and Panola Counties have been “disappointing”
-Why do well results vary so much, ranging from spectacular to dismal? Clay content,
permeability/porosity
-Merger and Acquisition activity – majors are active, international companies shopping
-Independents (CHK, HK, DVN, etc) have the heavy presence

Accepted “truths” of the Marcellus Shale
-Most economic shale on paper
-Recent wells in NE Pennsylvania have expanded the core area
-Actual well results have recently exceeded expectations
-Core area is mainly southwest Pennsylvania
-Land mass could make it the most prolific shale, but constraints are significant
-Best priced area in the US, especially if Rex East threatens Gulf Coast prices
-Availability of land not an issue

Major “unknowns”
-Access, geologic, regulatory constraints
-Unlike Haynesville, completions have to be precise within a shale section
-No independent confirmation of results because frequent regulatory updates not
required

Accepted “truths” of the Barnett Shale
-Play varies greatly by county – some areas may never be developed aggressively
-Greatest source of domestic supply growth in modern history
-Rig count has plunged at a greater rate than the overall rig count
-Declines have been in the core and non-core areas

Major “unknowns”
-Is the play peaking now? Several years ahead of prior expectations
-Will Tier II ever be developed?
-Why haven’t publicly traded Barnett players been acquired?

Accepted “truths” of the Fayetteville Shale
-Highly competitive shale play
-Leading edge initial production rates have been climbing to 5 mmcfe/d from 3 mmcfe/d
-Results can vary greatly

Major “unknowns”
-When will Fayetteville be perceived as a mature resource, the same way Barnett,
Pinedale, and Piceance are perceived now?
-With results varying, how much of the acreage is competitive with the top shales?
-How much lower can F+D costs go, with so many adjustments already made?

There are trillions of cubic feet of gas in these unconventional plays across the US; the question at hand is, at what point are they economical? Clearly, low natural gas prices are the foremost hurdle in making the economics work.

The consensus seemed to be that $6.50-$8.00 gas will work all day, every day and in nearly every shale play across the board. However, for these unconventional plays to make sense at the $3.50-$5.00 gas range, service costs (i.e. rig day rates, completion methods, etc.) will need to continue to come down. As one of the speakers noted, virtually all unconventional gas shale plays don’t make economical sense at $2.50 gas or lower. Let’s hope we never come close to going there.

A significant point that was brought up is that most companies have more acreage than they can effectively develop in these unconventional gas plays. Current shale players will need to complete transactions with outside investors to fund developments. Hence, groups like Chesapeake, Petrohawk and Shell will likely need outside help from private equity funds, etc. if they desire to drill and produce all of the current acreage under lease.

There is a lot more information that I would love to be able to cover, but due to time constraints, am not able to. Should any of you have any questions or comments for me, please feel free to email me at austin.eudaly@gmail.com.

Lastly, I’d like to thank Keith for setting up this opportunity for me to attend the DUG conference. It was a privilege to get to represent GoHaynesvilleShale.com amongst some of the best minds in the petroleum industry. He truly has done an excellent job with this website and I am glad I could provide some feedback for all of you out there. Thank you for tracking with me Shalers.


Best,


Austin Eudaly
Dallas, Texas
Autin.eudaly@gmail.com