"THE HAYNESVILLE SHALE SIZZLES WHILE THE BARNETT COOLS"
The discussion title is from an article by Arthur Berman who is Contributing Editor for "WorldOil.com - The oilfield information source". A link to his article is contained in his response to our discussion on decline curves. I have excerpted his post to begin this discussion as I think his professional views are most informative and should be of interest to our members. Mr. Berman has granted me his permission to repost his comments. Thank you, Arthur.
Reply by Arthur Berman 3 hours ago
Skip,
All shales are not equal. The Haynesville Shale is overpressured and, therefore, less brittle than the Barnett, so fracture stimulation is not as effective. It is also much deeper, so there are more problems reaching sufficient pressure with pumps, etc. to create a good fracture stimulation. Also because it is deeper, any fracture that is created is less likely to remain open.
For a fuller discussion of Haynesville vs. Barnett, see my September column in World Oil: http://worldoil.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=3640&MO... .
The flatter "tail" of the decline curve is not something that I see much value in, since it is highly interpretive at this early stage in Haynesville production history. Also, monthly production volumes in the flat portions of hyperboloic decline curves rarely generate enough revenue to cover lease operating expenses, so much of the reserves from this phase of a decline curve are not commercial, though technically recoverable.
When I do a decline analysis, I usually figure something like $5,000-10,000 month are necessary for lease operating cost. Assuming that current gas prices are $7.00/Mcf and about $1.00/Mcf of that goes for midstream costs, and another $1.00 or more goes to pay G&A costs, that means that the economic limit of a well is between 1-2 MMcf/month. That doesn't include taxes and royalty which is perhaps another $2.00/Mcf, so really the economic limit of a well is 1.75-3 MMcf/month.
All the best,
AEB
Reply by Arthur Berman 3 hours ago
Skip,
All shales are not equal. The Haynesville Shale is overpressured and, therefore, less brittle than the Barnett, so fracture stimulation is not as effective. It is also much deeper, so there are more problems reaching sufficient pressure with pumps, etc. to create a good fracture stimulation. Also because it is deeper, any fracture that is created is less likely to remain open.
For a fuller discussion of Haynesville vs. Barnett, see my September column in World Oil: http://worldoil.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=3640&MO... .
The flatter "tail" of the decline curve is not something that I see much value in, since it is highly interpretive at this early stage in Haynesville production history. Also, monthly production volumes in the flat portions of hyperboloic decline curves rarely generate enough revenue to cover lease operating expenses, so much of the reserves from this phase of a decline curve are not commercial, though technically recoverable.
When I do a decline analysis, I usually figure something like $5,000-10,000 month are necessary for lease operating cost. Assuming that current gas prices are $7.00/Mcf and about $1.00/Mcf of that goes for midstream costs, and another $1.00 or more goes to pay G&A costs, that means that the economic limit of a well is between 1-2 MMcf/month. That doesn't include taxes and royalty which is perhaps another $2.00/Mcf, so really the economic limit of a well is 1.75-3 MMcf/month.
All the best,
AEB
Views: 104
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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Time to bump hoping that a response is forthcoming that will expose an error in my calculations. I would prefer to hear that the productive life of a horizontal HS well is greater than what I am coming up with.
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Permalink Reply by Grillin' - MmmMmm on
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I've seen many many producing gas wells in North Louisiana that produce less than 100 MCF/day and are still economical. That's a gross number, including royalty gas. It can be dramatically impacted by water production, non-hydrocarbon components in the gas (CO2, H2s, etc.). But generally they can easily keep on at 100 Mcf/day, or 3000 MCF/month.
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Permalink Reply by The_Baron on
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Yes, but I bet the wells are not $8 million horizonatals w/leasing costs through the ceiling.
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Permalink Reply by Les Bamburg on
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Baron, the capital cost is not a factor in determining the economic limit of production since it is a "sunk" cost. Only gas price, operating cost, royalty %, tax %, etc are factors. Because operating cost for gas production may be low, a low rate well may still be economic to produce.
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Permalink Reply by The_Baron on
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For the working interest owners, all costs are important. Granted the leasing costs can be split among multiple wells in the unit, but the cost to drill and complete the well are important. If you spend more to lease, drill, complete, and operate a well than it pays back, the well is a loser. The goal is to make a profit.
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Permalink Reply by Les Bamburg on
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Baron, are you familiar with the term "economic limit"? I did not say capital costs are not important only that they are not relevant in determining a well has reached its economic limit. Even if a well is a loser based on full cycle economics, the operator will continue to produce if revenue exceeds opex.
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Permalink Reply by Grillin' - MmmMmm on
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Baron, as others below have pointed out, the cost to drill a well is only important when deciding to drill the well. Once you have drilled the well and have it on production, the cost to drill the well is not relevant to the economic limit of continuing production. That's like saying if you are trying to decide to repair your broken water pump in your truck, you look back and say "hey, I paid $25,000 for that truck...wonder if I should repair it". It has nothing to do with the monthly or daily decision to keep producing a well that is ALREADY DRILLED. The money spent to drill the well cannot be retrieved.
Now, for all of the accounting folks, the above applies to cash accounting and cashflow, not "financial accounting" and "earnings/net income". Those are fairy tale type numbers used within the stock world but bear little-to-no resemblance to the real world.
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Permalink Reply by Les Bamburg on
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Skip, I will have to discount Mr Berman's credibility some due to his following statement:
"An unexpected and disturbing realization emerged from this re-evaluation of the Barnett Shale: production is in steep decline. Production fell 20%in the third quarter (Q3) of 2007 through Q2 2008 (300.8 to 239.6 Bcfe)*. The probable cause is a decline in drilling: well completions dropped 44% in Q2 2008 (358 wells) from Q3 2007 (641 wells). The US Geological Survey and industry analysts estimate nearly 30 Tcfe of recoverable reserves from the Barnett Shale. On June 1, 2008 cumulative production was 4.4 Tcfe, and it seems unlikely that the Barnett play will reach 6 Tcfe based on the pattern of decline observed over the last eight months."
Anyone that is familiar with the Barnett Shale or takes a little time to properly research TRRC data knows there is a lot of late and delayed reporting of production information for the Barnett Shale. Barnett Shale production is still growing and likely exceeds 4.5 Bcfd. Something Mr Berman would have known if he did his homework before writing such a misleading statement.
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