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%
Decline By Year:
1- Barnett - 56% HS - 81%
2 - " - 27% " - 34%
3 - " - 18% " - 22%
4 - " - 12% " - 17%
5 - " - 8% " - 13%
Views: 1335
Replies to This Discussion
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Permalink Reply by Les Bamburg on
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SS, I am not sure your basis for the 7-10 years of economic life for a typical HS well. I believe the economic life would probably fall in the 20-30 year range since operating costs will be fairly low especially if costs are spread over thousands of producing wells. This the reason you see consolidation between O&G operators when producing fields become "mature". It really helps reduce the unit operating cost by eliminating duplication.
You right that until there is more production history for the HS any estimated decline rates are just that - estimates.
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Permalink Reply by Skip Peel - Mineral Consultant on
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KB. The link stated is the Btu equivalency formula. A means to compare energy potential in differing forms of hydrocarbons. And the statement concerning the long length of productive life of gas shales is consistent with past discussions. At that time the question debated, but unanswered, was at what point in the later years of that production would a well become non-commercial? Costing more to operate than the profit generated. That question is unanswerable as no one knows what the price of ng will be in the future. Higher prices = longer commercial life. And the 2005 date of the report makes me wonder whether Schlumberger holds the same view today. I'd certainly be interested to see a more current statement. I have been looking for a source for you on current supply/demand/price dynamics. I have not found any as yet and suspect that it does exist but not in the "free" portion of the websites I review. You might get a lead from some of the editors at oil&gasinvestor.com.
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Permalink Reply by Les Bamburg on
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KB, I had read this Baker Institute report last year and have the following observations:
The study is somewhat dated and was completed prior to the increase in domestic gas production which has weakened the connection (via LNG imports) to international natural gas prices.
The study is premised on fuel switching capability between natural gas and residual fuel oil in the power and industrial sectors. This capability has essentially disappeared since 2000 due to the efficiency of combined cycle natural gas power generation and environmental regulations impact on residual fuel oil consumption.
Natural gas prices are more correlated with coal due to competition between the two fuels in the power dispatch pool.
The only indirect effects are weather and the US economy which impacts both natural gas and residual fuel oil demand and prices.
The study discussed how many others have identified the "decoupling" of crude oil and natural gas prices.
The study acknowledges that any relationship between crude oil and natural gas prices is indirect in nature. The contention that there is a long run relationship between residual fuel oil and natural gas prices is based primarily on pre 2000 data when fuel switching capability still existed. Using more current data would show how the residual oil and natural gas relationship is no longer valid.
A relationship between the two commodities may develop, but it will be sometime in the future when the US is importing significant volumes of LNG.
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Permalink Reply by Skip Peel - Mineral Consultant on
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KB. I am thinking that the "new reality" of the value/price equation for ng is the perception that significant new production is coming to market with much more to follow in the first two quarters of '09. The supply is increasing faster than the demand. I am beginning to see some relatively new gas wells "shut-in" for market/price reasons. So some operators are in a position to do so. Others, particularly the larger HS operators, may not have that option due to cash flow being their only current capital source and the terms/extensions on their leases.
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Permalink Reply by Grice on -
Skip, not only increased domestic production will have an impact on NG futures, but the increasingly popularity for LNG liquefaction plants along the west coast.
http://www.energy.ca.gov/lng/documents/3_WEST_COAST_LNG_PROJECTS_PR...
(note: the PDF is slow to load)
http://www.tdn.com/articles/2008/09/19/area_news/doc48d333302b5eb55...
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Permalink Reply by Skip Peel - Mineral Consultant on
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Grice. I had the impression that many of the LNG terminal projects had been canceled or put on hold. That would appear from your links to be incorrect at least for the west coast. It is instructive for us to keep in mind that LNG is less sensitive to domestic ng prices but more driven by the price in foreign markets such as Japan. Last I heard a mcf was worth approximately $20 there. Export of LNG would improve the demand side of the equation but would, to some degree, conflict with the desire for national energy independence. The most recent report I read concerned FLNG (Floating LNG) where by off-shore, deep water ng production would be liquefied and loaded directly onto a new type of tanker for delivery to foreign markets.
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Permalink Reply by The_Baron on
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Several lng terminals have been built in the US. Mostly, they are designed for import not export. However, Skip is correct in the statement that overseas lng is worth much more. I have heard Spain pays anywhere from $13-20/mcf.
Also,
LNG plants are hated by environmentalists. The plants require large amounts of water (usually seawater) as a temperture sink/bank in the liquification/gassefcation process. The environmental impact is debateable, but many hard core groups suggest it changes the local marine ecosystem due to the plants impact on water temperture. This is what shut down plans for a terminal in south Louisiana.
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Permalink Reply by The_Baron on
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The debate is how much does it change the temp. All changes are very localized, strong tides and natural currents in an area would minamize the impact. Conversly a plant located in a more isolated area, such as an inlet or sound, would have more of an impact.
The debate is close to the debate on desaliniztion plants, as they increase the salinty of the area. (salt water in, fresh water removed, much saltier discharge back into the sea) -
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Permalink Reply by Les Bamburg on
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Baron, actually most onshore LNG regasification terminals do not use large amounts of seawater but instead utilize close loop systems known as Submerged Combustion Vaporizers (SCV's). Some proposed offshore Gulf of Mexico LNG terminals were planning to use Open Rack Vaporizers (ORV's) but these were all cancelled.
The fact is the there are no environmental impacts related to properly designed ORV systems but politicians do not always base decisions on facts. -
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Permalink Reply by The_Baron on
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I agree that closed loop systems have less of an impact, but they do not eliminate the impact.
check out this link. It is a document produced by the Coastal Conservation Association. Their point of view is to protect coastal areas for the purpose of protecting sport fishing and recreation.
http://www.ccamississippi.org/LNG%20briefing%20document%20v2.pdf -
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Permalink Reply by Les Bamburg on
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Skip, LNG prices in Asia vary significantly dependent upon the vintage of the contract. Some older contracts have prices capped as low as $3.00/MMBtu while newer contracts would be $17/MMBtu at $100/Bbl crude oil price. Most of the publicity you read about $20 prices were for a few spot cargos purchased earlier this year but do not reflect longer term prices. Having said that, it is true that a lot of LNG supply is currently being diverted from the US to Europe where additional natural gas supply is required.
The floating liquefaction plants are being considered for areas with no local gas demand and that do not have sufficient reserves to justify a large onshore LNG plant. Candidate regions include Southeast Asia, Western Africa & Australia. By the way, the LNG is loaded into regular LNG tankers. You may thinking of the new LNG regasification ships that have been built.
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Permalink Reply by Skip Peel - Mineral Consultant on
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FLNG Article link: http://www.theglobeandmail.com/servlet/story/RTGAM.20081125.woilshi...
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