Posted on 06/29/2011 9:34:22 AM PDT by arthurus
If I can re-iterate some of the concerns, they begin with the cost of the drilling and completion operation. Both parts of this are expensive, the initial cost to drill a vertical well, and then turn it horizontal and run it out thousands of feet within the shale costs millions of dollars, as then does the subsequent series of events that includes fracturing the horizontal well a number (perhaps 30) times and using expensive suspension fluids to force small particles into those cracks so as to prop them open and allow gas to migrate from the rock into the well. The costs as a rough initial marker, run around $5 million dollars per well, though they can go considerably higher.
(Excerpt) Read more at oilprice.com ...
Ping.
It’s been known for years that the depletion rate on shale gas wells made them economically risky. The rhetoric surrounding the shale gas discoveries is somewhat overblown.
Yeah, I love the concept of the NY Times commenting on the economic viablity of the gas shale industry, given they can’t figure out their own economic viability.
Here’s what I know:
* willing investors abound;
* turn a valve at home, and gas comes out.
The biggest risk for gas companies is government.
First, the process and costs keep dropping as technologies increase. As the technologies increase, more gas is available to be extracted. Hence, the estimates from everyone is considered to be LOW, not optimistic.
Second, if it was not profitable to drill a well, nobody would be doing it (except liberals receiving subsidies).
Third, each well does not need a compressor. They can be tied into main lines where a regional compressor maintains the backbone pipes at a constant pressure.
Finally, in my opinion, this “professor” is out-of-date on the industry.
ping
To better explain, production falls off fairly quickly, as does production from a horizontal well after the frac. Note that the frac can be done in multiple stages, (I have seen 28 stage frac jobs out here in the Bakken), instead of separate frac jobs, which would require setting up equipment from scratch each time. The writer may have that confused, although a well can be fracked more than once.
Keep in mind that during the initial production the oil/gas company recoups the majority of its investment fairly rapidly, if the well does not reach payout and start making a profit in that time, and if there are no complications which result in lost production.
In the Bakken/Three Forks (both of which are conventional, if tight, reservoir rock with shale oil/gas sources) and in the Eagle Ford, oil is the factor which virtualy ensures profit if the drilling and completion go smoothly.
Complications in either process (hole problems, bad steering and subsequent sidetracking of the well, stuck pipe, to name a few) can significantly increase costs and make a well unprofitable.
Barring complications, in the absence of long term production data, it is difficult to say much more than some wells will do better than others, but almost all similarly hydraulicly fractured horizontal wells will get an initial boost in production from the additional pressure pumped into the formation during the frac job. Even without a frac, the well will decline in rate of production some 60% or more in the first year before levelling out at a more consistent rate of production and reduced rate of decline. However, the volume produced will often be sufficient to pay for the well in that first year, and the rest is gravy for the operator/investors.
The marginal wells will be just that--marginal (recouping investment with modest profit, or sometimes a small loss)--but there is money to be made on exceptional ones.
Improving technology makes for improved yields, and reworking an old well (a 'workover', sometimes including another frac job) has been shown to bolster lagging production.
Shale gas may be different than the gas produced here in conjunction with oil, but the natural gas which comes from oil wells has to be processed to separate methane (the primary gas in natural gas) from the heavier gasses such as propane and butane, as well as longer chain volatiles.
At the same time, water and other contaminants are removed. The gas is either compressed or liquefied and stored or pipelined to distributors from there.
I really can't think of any situations where there is widespread wellhead to consumer distribution without processing, and even lower pressure wells' output can be collected and compressed prior to processing and distribution.
Considering that the vast majority of oil wells are slow producers which in quantity make up a significant fraction of the oil produced, at some point the sheer quantity of partially depleted wells will make up for a few barnburners, so long as the reserve depletion is replaced with new wells.
While cash flow is part of the overall strategy, none of the investors are in this to come up short when there are no leases left to drill, and many of the players have been in the business for a long time.
If there wasn't a profit to be made, this would not be done. That simple.
Now, keep in mind there has been an incredible attack on the industry for producing the 'clean natural gas' that government and consumers (and the Environmentalists) have been demanding.
Attacking the industry at its investment base is just a little bit of Sun Tsu, trying to drive off the investor money which makes rapid development possible. The companies doing the development will do so anyway, all other things being equal, but the progress will be a little slower without the outside money.
In the meantime, foreign investors are eager to invest, even lease the mineral resources that domestic ones cannot if they do not have the capital available. Make of that what you will.
NYT is full of it.
More of the “this doesn’t work” because it works (”too much natural gas”) - just slime, slime, slime.
Do they have any idea how many millions of barrels of hydrocarbons the U.S. is exporting - yes EXPORTING - due to natural gas production? Millions of barrels per day of NGLs (natural gas liquids): ethane, propane, butane and their derivative products: ethylene, propylene, etc. The US chemical industry is back from the dead thanks to cheap, plentiful ethylene feedstocks (which replace naptha, a crude oil derivative).
Hint: still room to the upside in the right stocks.
Of course the dry gas plays (like the Haynesville) are barely economic with n. g. at $4/mcf. But the wet gas plays are economical with n. g. at $0/mcf (as Range Resources says).
The Slimes will say anything to slime a US success story.
Two unexpected gushers in northeastern Pennsylvania are helping to illustrate the enormous potential of the Marcellus Shale natural gas field.
Each of the Cabot Oil & Gas Corp. wells in Susquehanna (suhs-kwuh-HAN’-uh) County is capable of producing 30 million cubic feet per day. That’s believed to be a record for the Marcellus and enough gas to supply nearly 1,000 homes for a year. The landowners who leased the well access are splitting hundreds of thousands of dollars in monthly royalties.
Drilling companies say they’re getting better at coaxing natural gas from giant shale deposits underground.
As a result, the Marcellus has turned out to be an even more prolific source of gas than anyone anticipated — leading drillers to boost predictions of how much gas they’ll harvest from each new well.
http://www.businessweek.com/ap/financialnews/D9O3LT901.htm
“The costs as a rough initial marker, run around $5 million dollars per well, though they can go considerably higher.”
Is it only my ignorance that allows me to think that $5 million figure is not high (if the recoverable amount is high enough), for one well in the nat gas industry?
I haven’t done the math on any recoverable level for a theoretical well, but it would seem (in my ignorance) that if the ROI for a nat gas well of this type was not going to be many times over $5 million, that there would be no news at all today about this type of drilling.
Something seems off to me. What’s up?
I don't know. That's what I'm asking. The guy seems to know whereof he writes but it does stem form NYT.
All right. I know next to nothing about gas and oil and this character seems to know what he writes about. I was a bit suspicious of the NYT source, though. I guess NYT should be discounted as a matter of course.
I appreciate the textbook lesson. I feel somewhat enlightened. Thanks for that.
You’re welcome. I’m a geologist working in the Williston Basin (ND, MT) on Bakken and Three Forks wells (I’ve been at this for over 30 years and have seen a lot of changes in the industry). Most of the (non-trade) media make a wreck of trying to describe drilling operations, production, or most anything about the oil industry.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.