Is the Texas Barnett a harbinger for the Pennsylvania’s Marcellus?
Late Friday afternoon, former U.S. Congressman Newt Gingrich told oil and gas industry attendees at the 2013 Pennsylvania Marcellus Shale Insight Conference, “There are people who don’t want this future, who don’t want these competitive ideas,” referring to ongoingshale gas development in the Pennsylvania Marcellus. At the same time Gingrich was in Philadelphia speaking at the industry’s annual conference, the University of Texas released an updated study on the Texas’ Barnett shale formation which confirmed the Barnett’s overall shale gas production has now declined by more than 20 percent since 2011. The study also confirmed of the 16,000 Barnett wells drilled to date about 12,000 of them are now classified as depleted. With similar shale gas production declines occurring in other U.S. shale formations, issues of rapid decline rates and the capital needed to sustain the U.S. shale gas industry look to be the increasingly driving realities of which the Pennsylvania Marcellus will not escape.
The Shale Insight Conference, sponsored by the industry front group the Marcellus Shale Coalition, was awash in bold statements and held at a time of record shale gas production within the state. In addition to Gingrich’s expected demonizing of government regulations on the industry, Kathryn Kabler, the outgoing president of the Coalition told attendees, “240,000 can attribute their jobs to the oil and gas industry,”. This is a job creation claim continually cited as misleading by Pennsylvania labor economists. Stephen D. Pryor, president of Exxon Mobil Chemical Co., called on the government to quickly approve more than a dozen applications to build plants to liquefy natural gas for export. This demand even as Lt. Gov. Jim Cawley focused his speech on the “national security that energy independence brings…The Saudis are now worried that we’re becoming the world’s energy powerhouse,” he said. Aggressive exporting of natural gas while at the same time assuming energy independence increasingly do not appear to align with the realities of what is occurring in several major U.S. shale fields.
With the conference in town, at the same time down in Texas, Carrizo Oil & Gas is attempting to sell off its Barnett assets while oil and gas rigs in the formation have dropped from 64 in 2011 to 35 this year, the second-largest decline among U.S. shale plays after the Haynesville Shale in Louisiana, according to Baker Hughes. The just released update to the University of Texas study of the Barnett now confirms large land areas in the formation no longer considered as viable for drilling.
The facts of production life in the Barnett differ significantly today from what early on shale gas promoters said about it back in 2008 when Chesapeake Energy’s now deposed CEO Aubrey McClendon stated, the company’s Barnett shale leaseholds, “….will provide Chesapeake with significant growth opportunities for years to come.” Today, as was the case in 2012, there is virtually no mention of Barnett shale in the company’s latest investor presentation as it states a new emphasis on a, “Drilling program targeting our best rock.” The company no longer archives for public access its prior investor presentations from 2008 to 2012 on its web site.
Capital spending concerns are growing with the realization the 12,000 shale gas wells now considered by the University of Texas to be depleted came at the cost of between $3 million to $4 million per unconventional shale gas well requiring billions in capital investment. The UT study cites an optimistic 44 trillion cubic feet of shale gas remaining while the federal government and independent analysts estimate 25 trillion cubic feet at best. The UT study also estimates another 11,000 wells needing to be drilled to meet its estimate of remaining shale gas production. This will require billions more in capital from an increasingly skeptical investing public as marked by declines in the value of a number of U.S. shale gas company stocks.
Similar to record production levels in Pennsylvania today, the Texas Barnett enjoyed their own record production levels in 2010 and 2011 before beginning to decline. The main Barnett production comes from just two Texas counties, Johnson and Tarrant. Similar to the Barnett, the best production in the Pennsylvania Marcellus comes from just two productive areas. A dry gas window located in northeast Pennsylvania in Bradford, Tioga, Lycoming and Susquehanna counties and a wet gas window in the southwest corner of the state in Washington County not far from Pittsburgh. Chesapeake Energy and Talisman Energy continue to cut back on their Pennsylvania Marcellus lease holds.
The industry in Pennsylvania has drilled about 7000 unconventional shale gas wells of which 4,100 are in production and another 800 wells now classified as inactive. Such inactive wells could either be depleted or not considered economically viable. Industry advocates typically claim any such classification simply means the wells are not connected to gas gathering pipelines but will be shortly. However there is no way to verify exactly the actual status of these 800 Pennsylvania wells for the time being. Evidence is clear in the UT study confirming the majority of shale gas wells in the Texas Barnett are now considered depleted.
With the Barnett now in decline, it joins the Haynesville and Fayetteville formations also experiencing rapid production declines. Considering these formations began to see widespread drilling operations less than 10 years ago, their overall rate of field declines are happening much more quickly than expected or represented. It also appears to validate the 2009 work of such petroleum geologists as Arthur Berman who has been documenting rapid and aggressive shale gas production declines rates on a per well basis since the U.S. shale gas boom took off.
In addition to dealing with rapid decline rates and investment capital resources, the industry is also facing growing doubts about its aggressive stand to export U.S. shale gas overseas while at the same time promoting energy independence. As strong statements about the Pennsylvania Marcellus continue to fly about, it’s looking more and more like the simple realities of geology and access to capital will determine its overall importance to the American energy scene.
Philadelphia Energy Examiner
rollin on Tue, 1st Oct 2013 12:25 pm
The resource is there, eventually it will be produced. If push comes to shove, the gas industry will be nationalized and the taxpayers will pay for any losses.
rockman on Tue, 1st Oct 2013 12:50 pm
Not that I don’t disagree with the shot taken at the cornucopian hype about all the shale plays in general but there’s no need to offer ridiculous “evidence” supporting such assertions. For instance: “Evidence is clear in the UT study confirming the majority of shale gas wells in the Texas Barnett are now considered depleted.” Got some equally shocking news for the Examiner: the vast majority of all NG wells in the US, including those drilled in every conventional NG reservoir, ARE DEPLETED today. There never has been nor ever will be any well that doesn’t deplete. Da! LOL.
There are numerous shale reservoirs that weren’t very economical to develop even when NG prices were higher. But in the end it’s the price of NG that has the most impact on development. When NG was bouncing around $10/mcf one of my clients, Devon, had 18 rigs drilling the Haynesville Shale in E Texas. They were satisfied with the economics of the play and were planning on expanding. But when NG prices plummeted Devon cancelled contracts on 14 of those rigs and paid $40 MILLION in penalties to do so. The geology of the play, which Devon understood very well, didn’t change. But the price of NG eventually fell over 80% from the peak. From 2009 to 2012 my company was involved in $400 million of drilling efforts chasing deep conventional onshore NG. But as NG prices continued to slide we’ve spent exactly $0 drilling for NG since then. Geology matters…but so do prices.
I don’t know the current details of the economics of developing the Marcellus. But given current NG prices are still less than half of what they were when that Barnett was booming it is something of a testament to the Marcellus IMHO that any company has any interest in drilling it. Yes…the Barnett appears to have been a bust for Chesapeake. But that was helped greatly by the decrease in NG prices. Not all shales, oil or NG productive, are created equal. And not all portions of a particular play are created equal. Lots of profitable activity in the Eagle Ford Shale play going on today. But Shell has just announced it’s dumping over 100,000 acres it owns in the EFS trend. They drilled over 185 wells in the last few years. The average initial production rate of those wells was 73 bopd and 960 mcfpd. Compare that to press releases bragging about 1,000+ bopd producers.
Trying to cherry pick the results in one shale play to discount the potential of another shale play is ridiculous. One doesn’t need to point to the high decline rates of Barnett wells: all the fractured shale wells have high decline rates. All plays have sweet and sour spots. I know of one sweet spot in the Marcellus where an operator generated a huge rate of return many times what a typical Barnett well created. Does that imply the Marcellus is a much better play than the Barnett? Of course not. Nor does the poor outcome of the Barnett development indicate the Marcellus can’t be an economical trend. But that also doesn’t mean the Marcellus has legs to carry it very far into the future either.
Did anyone else find it odd that an article about the economic viability of the Marcellus trend doesn’t include even one bit of information about the current economics in the Marcellus play? But lots of info about the Barnett Shale which is half a continent away from the Marcellus and 40 million years younger. Rather odd IMHO.
shortonoil on Tue, 1st Oct 2013 2:50 pm
“With the Barnett now in decline, it joins the Haynesville and Fayetteville formations also experiencing rapid production declines. Considering these formations began to see widespread drilling operations less than 10 years ago, their overall rate of field declines are happening much more quickly than expected or represented.”
This why the shale industry has not been releasing reports on the pressure decline rates in these fields. Shale production is gas drive. These fields are nothing more than pressured vessels with a hole drilled in them. A couple of years of data would have exposed the whole fiasco. When this comes apart it will be interesting to see if the bond holders will have any redress for the fraud, or will this turn out to be another TBTF bank sub-prime robbery. One where the thieves cruise around in their Porches, and spend their summers in the Hamptons.
BillT on Tue, 1st Oct 2013 3:14 pm
And so passes the age of shale oil … taking sown even more suckers desperate for profits.
Hurry! Frak now! Destroy your water and land while you still have a chance! It is all ending soon! LMAO!
rockman on Tue, 1st Oct 2013 8:05 pm
SOO – Like you I’m not a shale lover. Of course, if I were a promoter or CEO of a public company trying to separate fools from their money I might have a different view. LOL. But the shale plays aren’t really “fields” in a conventional sense. You’re correct about the pressure depletion aspect of the reservoir. But the good news/bad news about the reservoir is the very limited connectivity that exists within any one of these shales formation. The fractures being drained (and thus rapidly declining) are very local. It very easy to deplete a well down to 900 psi pressure and then drill a new well just a few thousand feet away and find a reservoir pressure of 8,000 psi. But there are times when well spacing gets to close and the new well finds those pressure depleted fractures.
But on the whole the trend does not act like one reservoir with a uniform pressure base. But that’s also the bad news: just because a well tests a nice flow of oil/NG at a virgin pressure it doesn’t mean it’s draining a very large area. Thus the high decline rates. If a well were draining fractures that extended for many thousands of acres around it then the recovery per well would be much higher. Like 5 to 10 times what the most optimistic offer. But that’s not the case. But this also points to the foolishness of projecting big reserves across an entire trend based on some very local results.
So the real error IMHO would be for folks to think they are drilling into a large ubiquitous reservoir that could be drained by a relatively small number of wells. Just the opposite: to develop those big recovery numbers folks toss around will require a very large number of wells.
There is no “field pressure” in the Barnett, Eagle Ford, etc. There are thousands of wells in all these trends with very low pressures today. But that doesn’t prevent a new well in anyone of them coming in with virgin pressure if it’s drilled far enough away from the depleted wells.
shortonoil on Tue, 1st Oct 2013 9:40 pm
“But that doesn’t prevent a new well in anyone of them coming in with virgin pressure if it’s drilled far enough away from the depleted wells.”
Basically your right. But after you drill it, you’ve got another well with a 30% decline rate. Someone has to put up the money to drill it. The problem with shale wouldn’t be running out of drill-able acreage, it will be running out of people who are stupid enough to fund it. That will come when the FED’s free money program comes to rest, or they collapse the rest of the economy.
MrEnergyCzar on Wed, 2nd Oct 2013 2:43 am
On to the Tar Sands of Utah….
MrEnergyCzar