Replies to This Discussion

Permalink Reply by BirdDawg, plain ole' idiot on October 26, 2008 at 13:37

Skip, Do you realize how few wells have existed in the Haynesville Shale for 1, 2 or 3 years? Very few. And the first few were completed with basically no experience in completing HS wells. I believe completion results will increase over time, and have definitly increased since the first HS wells were completed. I am not saying that I think that HS wells will have some kind of super long term life unlike other shale wells, I am only saying that the cold hard fact is that there is simply not enough data available to calculate accurate HS decline curves, at this point it is all speculation. Fun, but only specultion.

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Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2008 at 14:04

Hey, BirdDawg. Good to see you back on the board. Yep, I realize the small number of horizontal HS wells reported to date. Production could certainly increase with improved completion techniques but I don't believe that will change the decline curve unless they can change the nature of the formation. A higher initial production rate will make a few years difference in the commercial life of a well. I am being conservative using ten years. The CHk wells' production at the decline percentages published are no longer commercial by Mr. Berman's definition at year seven. The well life may be shorter than I had originally anticipated but the gas produced in those first few years is impressive by local standards. Now we just need a little bump in the price of natural gas. Think we could fix us up a CNG powered hunting buggy? My old legs aren't what they used to be.

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Permalink Reply by BirdDawg, plain ole' idiot on October 26, 2008 at 14:10

Skip, Please agree to let me disagree, but I do not yet think that they know "the nature of the formation", only time will tell. It could be better, it could be worse......

Permalink Reply by Snake Stewart on October 26, 2008 at 13:47

Hey Skip Peel,
Where does that leave the mineral owner when the O&G's use the 18 - 24 month payout scenario.

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Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2008 at 14:10

Hey, SS. I'm not sure about that 18-24 month pay out stuff. I have seen more than one report for wells of this magnitude that pay off the cost of the well in 60 to 90 days. Some of the real monsters are reported to do so in 30 to 45 days. Please keep in mind that those reports were in the days of $13/Mcfd. The life span may be short but the production volume is large.

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Permalink Reply by Spring Branch,mineral owner on October 26, 2008 at 17:53

Though I believe we should all be armed with as much knowlege as possible, I have a slightly different perspective regarding the rapid decline factor of the Haynesville Shale, if in fact the decline numbers that Chesapeake has put out are accurate. If the EUR of the typical horizontal Haynesville is 6.5 Billion cu ft of gas, and I have the choice of receiving my royalty from that 6.5 billion cu ft of gas over a 10 year period rather than a 30 year period...............
because of the "time value of money" I would choose to receive it over the ten year period every time. Price being equal, the rapid production of that 6.5 B's of gas is an advantage, not a disadvantage. Another thing : half of the wells in NW Louisiana and East texas must be terribly unprofitable, because after a few years most are making less gas than Mr Berman says is the profitability cut off point. As a royalty owner, I just want the O & G companies to keep producing, profitable or not. They mostly use marginal wells to help absorb some overhead.

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Permalink Reply by Skip Peel - Mineral Consultant on October 27, 2008 at 1:43

SB, the time value of money is an important consideration. And I too would prefer to receive those royalty payments over ten years instead of say thirty. It's the same amount of gas just received as income over a shorter period. Other than my curiosity as to the science behind the calculation of decline as it applies to the formation in general and to specific individual wells based upon their completion technique, my point that has relevance, I think, for the majority of members is the need to understand the decline in income so that it may be wisely managed.

I also see many wells with current production much less than the threshold stated by Mr. Berman that have produced for twenty or thirty years. This discussion has not delved into that quite obvious discrepancy and I am curious about that also. I had hoped for some additional participation in the thread from industry members. Maybe later. Mr. Krow was kind enough to weigh in which I always appreciate. I am not looking for, nor do I expect, a "one size fits all" field average. Just some informed discussion. Jim's comment about price trumping production is a good one in my opinion. It is likely the overriding determining factor in the "commercial to produce" equation for any gas well.

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Permalink Reply by Spring Branch,mineral owner on October 27, 2008 at 3:23

I can't speak for the O & G companies in the HS play, but I would assume that the decline in production in well #1 would be mitigated, say 2-5 years later by the drilling of well # 2 in the section which would be mitigated 2-5 years later by the drilling of well #3 in the section and so on. No way to know how they will develop each section once all the sections are HBP, but clearly the drilling of subsequent wells bill be a huge factor, whose timetable is impossible to determine at the present time. I believe firmly that most mineral owner's children will benefit from from the royalty from the HS and probably their children's children.

Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2008 at 13:56

Thanks, Earl but let's wait and see if we get some input from the pros. Where are you, Mmmarkkk? I want those members who will receive royalty income in the future to understand the relationship between that income and the decline of production in the well(s) that generate it. I fear some may not manage the early income expecting that it will continue at that level for years. I believe that the flip side of this decline coin is that the production, and thus royalty, in the first three years could be substantial. And, if properly managed, can provide many years worth of financial security beyond the productive life of their well. My examples are for a single well. I hope, and expect, that many mineral owners will get eight wells worth of royalties over the course of several years. At the production levels being reported, that could be income substantially in excess of a bonus.

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Permalink Reply by BirdDawg, plain ole' idiot on October 26, 2008 at 14:00

Skip,
I definitly think the royalty income will be far grearer than the bonus money. Just my opinion. Give me a "fair" bonus and a good royalty percentage, and then give me a well (or wells).

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Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2008 at 14:15

BD, I agree. There are many variables to my calculations. The number of acres owned being a potentially big one. Hope you got lots of acres and eight good wells in your future.

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Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2008 at 14:39

BD, I will always agree with your right to disagree. Especially with an amateur such as myself. No offense intended. My opinion is based on two observations. That there may be few horizontal HS wells at this time but there are hundreds of vertical wells that have recorded the formation over much of acres constituting the play. And my opinion that reservoir engineers with experience in tight shale formations are capable of analyzing that information and making accurate assessments even without significant production information. I will be curious to see if other well regarded operators report their decline curve calculations and whether it matches CHK. Some variance would not surprise me. I just doubt that any differences will be significant.

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