Replies to This Discussion

Permalink Reply by Krkyoldhag on December 2, 2011 at 3:00

Not an expert here..but have watched the wells of several friends and their production numbers..

Pays good for three to five years then drops off fast  ..

Perspective here ..the old oil wells drilled in the 50's and 60's paid and are still paying mail box money.  The checks look paltry compared to the six figure ones from shale gas wells...I figure the gas wells will keep putting checks in mailboxes for decades but not six figure ones..more like 3 figure ones..

The question is would it be profitable for the company to continue with the wells.

So...figure you will get good checks for maybe 4 years...but base your spending on those good years..and savings.

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Permalink Reply by Skip Peel - Mineral Consultant on December 2, 2011 at 3:17

IMO there is insufficient data to accurately project the economic life of an average Haynesville Shale well at this time.  The question for lessors in the management of their royalty income is more importantly, how many wells will I get and over what period of time?  Where the Haynesville Shale is economic, units should get 7 to 8 wells minimum.  Unless the operator finds that the formation can be produced on 40 acre well spacing, then double that.  The southern two thirds or so of the basin may have economic Mid Bossier production, so approximately 8 Haynesville wells and approximately 8 Bossier wells per unit.  Where either interval is sufficiently thick there may be upper and lower wells in the same formation.  Operators will continue to test a multitude of drilling and completion scenarios.  There will likely be different development patterns over the aerial extent of the Play.  Of course only the operators know the "when" part of the question.  I suspect that two to three years from now much, if not all, will be known including the economic life span of an average HA horizontal well.  I think it's safe to say that there will be continuing development for another 12 to 20 years after that point.  And production for another 15 or 20 years after that.  The HA/BO Play from beginning to economic end could easily be 50 to 60 years.

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Permalink Reply by Steve Thibodeaux on December 2, 2011 at 4:42

Am I reading this right?.

 

There could be 7-8 more wells drilled in a Unit?

Thanks

Steve

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Permalink Reply by Skip Peel - Mineral Consultant on December 2, 2011 at 4:48

Yep.  Such is horizontal well development in the Haynesville Shale.  Steve, there are numerous units (a single section) with over ten wells in varying stages in core areas of the Play.  Here's an example on a unit with 16 wells permitted, drilling or completed by EXCO in DeSoto Parish.

62

243789

HA RA SUK;ODEN HEIRS 31

016-ALT

01

17031258250000

E183

4541

13-SEP-11

031-14N-13W

16

GO TO LUW INFO

17500

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Permalink Reply by Steve Thibodeaux on December 2, 2011 at 5:35

Thanks very much for the info.

One other question. Do they notify you when they plan another well or get permitted?

Thanks

Steve

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Permalink Reply by Skip Peel - Mineral Consultant on December 2, 2011 at 5:46

The first well in a unit is the "unit well".  All those that may follow are "alternate unit wells".  The state requires the operator of the unit to apply for approval of the alternate unit well locations and that includes a notice letter to those on the unit Interested Party list.  However there is no requirement for the operator to drill those wells and each would still require an actual well permit application.  Interested Parties would receive notice for the original unit application and then for the alternate unit well locations.  Interested Parties are not notified when a well permit is applied for or granted.

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Permalink Reply by Mark Pomeroy on May 30, 2013 at 5:38

Skip, you hit the nail on the head, so to speak. First, economic limit and whether infill will occur is a function of price.  The price of natural gas over a fairly broad range does not affect demand in the short run. So, say, up to $8 an mmbtu, price is a function of deliverability and deliverability is a function of price.  Natural gas is fungible and transportable so the most economic plays will be infilled first so the Marcellus Shale may control price for quite a while thus controlling the infill rate of HA wells. If there is ever a complete end to the Haynesville Shale play, it may be due to something none of us have thought of.

As far as individual wells in the Haynesville are concerned, many will not simply decline to some market-determined economic limit.  Some wells, maybe most wells, will succumb to casing failure, loading-up, fines migration, or mechanical failures that are too expensive to repair.  No one understands the end-life processes very well.

So let’s not worry about what we can’t know for a moment.  Let’s arbitrarily define significant economic life as that part of well life from start to the point where the well makes only 10% of its initial monthly rate.  That life should be two to four years, typically.  A word of caution, some operators think that holding back pressure on the Haynesville increases ultimate recovery, so these wells have a low initial rate and decline rate.  They would have maybe an extra year of economically significant life.

So the economically significant life of an HA well would look something like this relative to the first year volume:

1       100%

2       33%

3       19%

At the end of year three the 10 to 1 reduction has occurred.  My perspective is that a royalty owner should treat royalty payments as more or less a lump sum payment spread over a few months rather than steady income.  I have a very small mineral interest and when a Haynesville well was drilled I got a check for $500.00.  That was pretty much it.

Infill is anyone’s guess.

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Permalink Reply by adubu on May 30, 2013 at 11:53

Mark--- I think you will be happily surprised for these wells will remain economical for many years although at a much lower production---to maintained  cost not that expensive relative --- if avg EUR is 7-10+ BCF you have < 1/2  in first 3 years per your decline numbers --- lot of gas yet to be produced-- yes may take 15+ years to get the remaining out of ground as well gets long in tooth

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Permalink Reply by Mark Pomeroy on May 31, 2013 at 3:39

Perhaps you are right, but the second half will be much less economically significant unless there is a drastic change in price, which could well happen. There is no reason to think the typical well will perform that way as opposed to another way, but obviously, the wells that have stopped producing won't. 

I lived in Shreveport for over 40 years and want nothing but good for the mineral owners, but there is actually harm in wishful thinking for mineral owners if they plan their finances based on future income that never materializes.  Investors and workers have a stake as well.

I once thought and said that these wells would bubble along for 50 years.  Now I don't know.  It could happen.  Will proppant embedment cause the fractures to heal?  I do not know.  Will fines production raise operating costs shortening the average life of wells?  I don't know.  I do know that after production has dropped off by 10 to 20 times, it really doesn't matter much how you draw the decline curve, unless you just want to assume a 3% decline or none at all.

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Permalink Reply by olddog573 on May 31, 2013 at 4:05

 I HAVEN'T SEEN ANYONE COMMENT ON WHAT COMPANIES DO WHEN THESE WELLS BECOME UN ECONOMICAL FOR THEM,  I CAN TELL YOU FROM EXPERIENCE THEY PLUG AND ABANDON THEM.  THIS HAPPENED TO ME AFTER AROUND 3-4 YEARS WITH A HAYNESVILLE.

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Permalink Reply by Skip Peel - Mineral Consultant on May 31, 2013 at 4:08

olddog, if you'd like to see comments I suggest that you post the specifics of the well to which you refer.  Serial number, well name, operator, section-township-range - whatever specifics you have.

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Permalink Reply by olddog573 on May 31, 2013 at 4:51

I only meant the remark as letting people know that life of wells my not be as long as expected due to the leasing companies business plans for the area.  It was written in caps only because I had my CAPS LOCK on so I wasn't trying to emphasize anything.

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