Decline Curves: Barnett vs. Haynesville

The recently released Chesapeake report included Haynesville Shale decline curve data from the initial wells. I was surprised to see a steeper curve than the Barnett Shale data. I am interested in the reasons for the steepness of the HS production decline and feel that those who are about to be first time recipients of royalty income should be aware of the affect. It does appear that though the initial years' decline is greater, the HS curve is flatter over the productive life of a well. What formation conditions and/or production methods explain the difference and does the decline percentage correlate directly to royalty income?

Decline By Year:

1- Barnett - 56% HS - 81%
2 - " - 27% " - 34%
3 - " - 18% " - 22%
4 - " - 12% " - 17%
5 - " - 8% " - 13%

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Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 4:44
Bump!
Permalink Reply by insomniacnla on October 18, 2008 at 6:45
Hello Skip and KB,

I truly HATE to ask, but I am going to anyway.

I live out in a rural area where fast-access internet is not available so I am stuck with dial-up internet service. I have tried to download the investor's report 4 times but it is so long that my computer locks up every time. Would it be possible for either of you to download a portion of the report that pertains to the Haynesville, maybe start a new discussion and post some of it there for those of us not capable of downloading it ourselves?
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 7:04
insomniacnla. The first 25 pages of the CHK report pertain to the HS. The rest is Barnett, Marcellus, etc. Just the HS portion is about a 12 meg file. Lots of graphics and charts. I don't think it would post well here on the site. Send me your email (skippeel@gmail.com) and I will see if I can send it by compressing. If we can't figure it out, I'll mail you a copy. It is worth the effort as the report contains much of interest to shalers. Skip
Permalink Reply by insomniacnla on October 18, 2008 at 8:07
Skip and KB,

Thank you both for your assistance in helping me view the information.

I bet that I was unable to download the report due to the fact that I am a greedy landowner. LOL
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 9:55
Go ahead and be greedy. It's your right. KB or I can just mail you whatever you can't download on dial up. For, let's say, 1% of your bonus. That sound fair? LOL! Skip
Permalink Reply by Snake Stewart on October 18, 2008 at 10:04
Better take it insomniacnla , before he backs out on you. HA!HA!HA! That was so not right of me Skip Peel and I apologize but it was funny.

Nice work Skip & KB!
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 10:40
Okay, now for something completely different. Hopefully, it's some analysis from our resident sages who actually know something of decline curves. You remember, decline curves? The topic of this discussion. Come on guys, I'm dying here. I need some help. Bumpity, Bump!
Permalink Reply by VSC DeSoto South on October 18, 2008 at 13:20
Decline curve for Haynesville Shale is higher than Barnett, year over year?
Have they drilled enough wells yet to have enough data to know this?
Why is it so much higher?
Is it because the formation is materially different? is it because the SHape is different? Is is different techniques? Why is the decline 81 vs 56%?
What is the life of the the well? (Haynesville is longer: how long is the life of a hayneville well?)

Thanks
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 14:51
VSC 'O'. I was hoping to get some of the members with industry experience to answer some of these questions but I guess they are not around today/tonight. I was also suprised that the HS decline was greater in the first year. And subsequent years. I had thought that the greater formation pressures and production on restricted chokes would have made it less. The Barnett decline curve represents many wells over many years worth of decline data. I believe that CHK has 14 producing horizontal wells so their HS decline curve in the recently released report is based on scant hard data. I am curious about the reservoir dynamics that explain this difference but it seems not many members share my curiosity. The relationship between the production decline curve and royalty income may not be a direct correlation but it should be of great interest to anyone expecting to receive mail box money. I had hoped that the decline information would lead to a sobering realization that royalty income declines with production over time. Knowing that decline, even as a gross approximation, should help royalty recipients manage that income. Since we are not getting much in the way of an informed discussion tonight, I will wait for tomorrow and post a hypothetical formula for production/royalty that will illustrate in dollars what the decline curve means. That may get a little more notice.
Permalink Reply by BirdDawg, plain ole' idiot on October 18, 2008 at 16:14
Skip,
I, like you, wonder how CHK can give a 5 year decline curve on the HS wells. How can they even give an accurate 1 year or 2 year decline curve? I don't think this can be established with the limited amount of wells on line now. Maybe just another ploy by CHK to get prices down?
Permalink Reply by Grice on October 18, 2008 at 16:40
If I understand the report accurately, the prices should go up. In the webcast, John stated that they restricted flow rates in order to regulate leases. Now that they have reported the unrestricted flow rate, lease amount should increase.
Permalink Reply by Skip Peel - Mineral Consultant on October 18, 2008 at 16:46
Hey, BirdDawg. Hope you're feelin better. I imagine that CHK has the technical knowledge to predict the curve based on the wells that they have on line. All gas wells, vertical or horizontal, shale or other reservoir types, decline steeply in the first year. The difference is how soon the curve flattens out and how long the production lasts. My take on the figures given is that the curve is basically flat from year six through ...., well I don't know. Year twenty? Maybe thirty? We have some pretty experienced friends among the members. I'm looking forward to some of them weighing in on this. I do not think this is a ploy to affect the perceived value of our minerals. I also think that it is something that should be discussed and understood by everyone fortunate enough to have a royalty check in their future. Monster wells do not remain monsters for long. I hope everyone gets 8 in their unit. Drilled over three to six years. Then the decline of any one well will not be such a big factor. Except maybe for the next generation. By then they may find out that the Smackover contains Gold! Who the heck knows what's down there and what will come next. Let's enjoy what we have now. And manage it wisely for the future.

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