NATURAL GAS: 40 RIGS CAN MAINTAIN HAYNESVILLE PRODUCTION PLATEAU - SeekingAlpha article - August 7, 2012

by Richard Zeits

The key argument often used by natural gas bulls is that the dramatic reduction in rig counts in the dry gas producing shales will translate into a rapid drop off in supply and lead to the price recovery toward the $5 level, and possibly higher. The Haynesville shale, where the rig count has declined from the peak of over 180 rigs two years ago to approximately 27 currently, is often presented as the most compelling evidence supporting that argument.

The view has been advocated by several prominent industry CEOs, including Chesapeake's Aubrey McClendon and Ultra Petroleum's (UPL) Michael Woodford. During Ultra's 2Q earnings conference call on August 2, Michael Woodford re-iterated his macro perspective on natural gas: "Capital is being withdrawn from natural gas investment as seen in the rig count reduction and pressure pumping softness. Production lags capital expenditures and the decline in production is imminent. We see $4 gas in 2013 and $5 gas in 2014." With regard to Haynesville specifically, he commented: "We have a view that says: production supply is about to shrink pretty rapidly. I think there are some comments out yesterday, with some companies that announced and talked about the Haynesville, that they would see a 10% per quarter reduction in their production. I think it is plus or minus 40% for the year. If you apply that to the 6 Bcf per day of Haynesville production, it is 2.5 Bcf per day of annual rate reduction, so I think we are about to see a drop off in supply." Michael Woodford was referring to the earnings call remarks by QEP Resources (QEP) the night before.

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Replies to This Discussion

Permalink Reply by dbob on August 14, 2012 at 2:25

Adubu

 

I'm not privy to the specific times by specific operators, but at this point, if not an ultra long lateral (7000'+) or in the highest pressure, deepest rock, rig up, drill and rig down can be done in about 33 days

Permalink Reply by Greedy Landowner on August 8, 2012 at 3:56
There are 250+ uncompleted wells per dnr. Usually a well is reported completed about 90 days after it goes online. If production numbers are more current, that leaves a sum of wells which are actually completed and producing, but have not yet been reported as completed by dnr. If this is true (which I admit I could be wrong) then wouldnt this group of wells skew production data? And if so would they not also create a bubble which would show a rather rapid correction as the number of those producing but unreported wells drops?
Permalink Reply by Skip Peel - Mineral Consultant on August 8, 2012 at 4:03

The 255 wells are Waiting On Completion which means they have been drilled but have not been fraced.  It's impossible to know or IMO even predict how soon each will be fraced and turned to sales.  There will probably always be some wells in this category owing to the vagaries of scheduling and availability of frac crews.  As most of the drilling rigs have moved to other plays so to I suspect have the bulk of the frac crew fleet. 

Permalink Reply by ALongview on August 8, 2012 at 4:36

How many wells have been drilled in the Haynesville/Bossier Shale?  How many units have been formed and drilled?  Estimates are fine :)

Permalink Reply by Skip Peel - Mineral Consultant on August 8, 2012 at 4:50

I think you will find your well answers here, ALongview.  I'd have to count the units off one of my spreadsheets.  I'll try to do that a little later when I have more time.

http://dnr.louisiana.gov/assets/OC/haynesville_shale/haynesville_mo...

Permalink Reply by ALongview on August 8, 2012 at 5:27

Thanks Skip!

Permalink Reply by Skip Peel - Mineral Consultant on August 9, 2012 at 5:19

LA HA Units (by my count):  2315

2007:  28

2008:  590

2009:  1128

2010:  513

2011:  53

2012:  3

Permalink Reply by ALongview on August 9, 2012 at 5:27

Thanks.

Permalink Reply by Greedy Landowner on August 8, 2012 at 6:22
I see. I was basing my logic off of data from the scout report. For example well #241683 (patterson in greenwood field caddo parish). On last weeks scout report it says it was completed 3/11/11, which means it has been flowing (and it has) since 3/11/11. the scout report for the week prior would have said "waiting on completion" even though it has been flowing since 3/11/11. Tomorrow this well should not appear on the scout report because it has been moved to a completed status. So this well had 1.5 years of production before dnr acknowledges as being completed. Wouldnt that "unaccounted production" create an illusion that these wells are producing more than they actually are? And also wouldn't that mean that as these anomalies decrease in number that field production would fall quicker than anticipated?
Permalink Reply by Skip Peel - Mineral Consultant on August 8, 2012 at 6:49

The well was Waiting On Completion at the 10/25/10 report date.  The well was in Completion Operations at the 11/29/2010 report date but not fraced until 2/28 through 3/7/2011.  Some times a well file entry will state "turned to sales" to indicate flowing into a pipeline but reporting regs are general.  The well can not be reported complete until after the state potential test that is the official Initial Production (IP) data and that report date was 5/5/2011.  The first month's production (partial month) was for March 2011 as indicated in the well file.  It wasn't 1.5 years from official completion report to first reported production, it was less than 2 months.

Look at the bottom of this section: LEASE\UNIT\WELL PRODUCTION

Permalink Reply by Greedy Landowner on August 8, 2012 at 9:02
Ah, thank you sir!
Permalink Reply by MB on August 8, 2012 at 4:48

Skip, this is the most informative article and comments I've read on the site in quite a while. Thanks for posting. MB 

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