[copious.abundance]

Looks like someone else is agreeing with the Chesapeake Energy CEO. Plus they make an interesting prediction.

--> LINK <--
$this->bbcode_second_pass_quote('', '[')b]NGSA: No natural gas shortage in the US
By OGJ editors

HOUSTON, May 22 -- US natural gas supplies are strong and will remain that way for the foreseeable future, according to an association of gas producers and marketers.

The amount of gas in storage is on track to meet this year's expected winter demand, which should help lower prices, said Jenny Fordham, director of energy markets and government affairs for the Natural Gas Supply Association (NGSA).

Fordham said that while gas production from the Gulf of Mexico has been dropping in recent years, producers have met consumer demand by developing new gas finds in unconventional shale fields in Texas and in Marcellus shale field, which stretches from New York to West Virginia. NGSA also expects US LNG imports to strengthen in future years, although competition from world demand will continue to limit imports in the near term.

Separately, in a research report to clients this week, Raymond James & Associates analyst Marshall Adkins said the bank's gas model shows that the US will be on the verge of shutting in gas production—resulting in a gas price collapse—if it experiences normal summer weather, based on the recent 10-year average.

Raymond James expects domestic gas production growth to continue to grow at a 4-5 bcfd rate throughout 2008, as drilling activity ramps up, potentially offsetting production decline rates for several years.

"We put the odds of a natural gas price collapse at 50%," the report said. "If summer weather is warmer than normal, incremental cooling demand should eat away at storage levels, bolstering double-digit natural gas prices. If the weather is milder than normal (i.e., colder than the 10-year average), then natural gas storage could exceed 3.65 tcf, and late summer natural gas prices could fall to $6/Mcf," the report said.

[...]

$this->bbcode_second_pass_quote('OilFinder2', 'T')his article focuses on Oklahoma City where Chesapeake is located, but this paragraph was interesting:
--> LINK <--
$this->bbcode_second_pass_quote('', 'M')cClendon said the nation can now count on a 5-percent annual supply increases for the immediate future. That would not only negate forecast needs for increasing liquid natural gas imports, but provide enough surplus to begin serious commercial applications for our nation’s transportation sector.

[rdsaltpower]

chesapeake bails out of Charleston, Wv with HUGH financial ruling against them. http://www.wvgazette.com/News/200805290738

[seahorse2]

OF,

I posted the same article on the Olduvai Gorge thread. You suggest the article concludes that the US will not need LNG bc unconventional NG production in the US is rising. That's not the conclusion of the article. The article clearly concludes the US is making a mistake by not importing LNG now and by not doing so is setting itself up for a problem in the future. This quote is from the above article:

$this->bbcode_second_pass_quote('', 'W')ith L.N.G. providing only about 3 percent of total American natural gas consumption in recent years, the fall in L.N.G. imports has made few headlines. But some experts say those responsible for importing gas are making a mistake by not buying more L.N.G. at current prices.

They warn that the failure to import more L.N.G. is leaving natural gas reserves precariously low should the country be hit by a harsh hurricane season or cold winter. They say low L.N.G. imports have helped push American natural prices higher, just not high enough to match the prices of Europe and Asia whose ability to produce and store gas is far inferior to the United States.

Andrew D. Grams, head of North American power and gas trading at Deutsche Bank, said the United States may eventually pay dearly for not importing more L.N.G. now. He calculated that given the reduced L.N.G. imports and expected energy use through the summer, the country will have only 3.1 trillion cubic feet of gas in storage at the end of October — almost 1 trillion cubic feet below full storage.

“Under a normal scenario, that’s just barely enough to get through winter,” Mr. Grams said. “It doesn’t take a rocket scientist to figure out that we may not get enough L.N.G. supply in the United States unless our pricing structure becomes more competitive with the rest of the world.”

So, although unconventional gas production is growing, the numerous articles on the subject all say that at best, it has caused a plateau in US production and that the US will have to import LNG. But, as this article shows, we are not doing so and the risk remains that in the future other countries will outbid the US for the LNG available.

[seahorse2]

Oilfinder,

I would also ask you to read and consider a post, made by SSCbarber in the thread "Do you work in the oil industry. "

$this->bbcode_second_pass_quote('sscbarber', 'I') have 25 years in drilling business. Degree in Mech Eng from cal poly. 20 years with Sedco/Schlumberger and 5 years as a consultant. I live in Calif.

[Troyboy1208]

wow seahorse thats quite the sobering article. I will be anxious to hear OF2s response. Maybe him and Freddy H can come up with some stuff to thwart what your man in the business is seeing.

$this->bbcode_second_pass_quote('seahorse2', 'O')F,

I posted the same article on the Olduvai Gorge thread. You suggest the article concludes that the US will not need LNG bc unconventional NG production in the US is rising. That's not the conclusion of the article. The article clearly concludes the US is making a mistake by not importing LNG now and by not doing so is setting itself up for a problem in the future. This quote is from the above article:

[copious.abundance]

In fact, now that I look over that EIA monthly chart again, not only did March break the record for the month of March, it broke the record for all months on record!

[Kingcoal]

This thread reminds me of the old saying on this site that "Peak Oil is a liquid fuels crisis," and it is. 70% of the oil we consume gets burned up in internal combustion engines, which are vastly inefficient I might add. Natural gas is very versatile and is the feed stock for many petrochemical industries. NG home furnaces are approaching 95% efficiency. Compare that to an internal combustion engine, which has a hard time breaking 40% under absolutely ideal conditions. Finally, NG burns much cleaner than distillates; no sulfur, much reduced CO2, etc. To the end user, NG is easy to distribute through underground pipes. IMO, NG is a great next step, however burning it up in internal combustion engines is stupid.

The real problem we have is the automobile, period. Converting automobiles over to NG is like switching from wood to coal in a steam locomotive. The problem is the ICE, not the fuel. We really need to restructure our transportation habits more than anything. I think that much expanded public transit is the answer, but that is a different thread.

What is the EROEI of shale gas? I know that oil shale has a very poor EROEI and I'm curious about shale gas.

[max_in_wa]

To TexasGirl -- what are you thinking posting your exact location on the internet? And while I have no reason to doubt Mr. Getdrilled ... well, with an email address like that, you connect the dots.

To Rosebud -- you need to take your specific contract to a lawyer familiar with state and federal laws relating to mineral rights where your property is located. Requesting legal advice on a forum where all manner of people come to rant is not in your best interest and I'd suggest you don't do it.

You really should take THIS advice, but if you follow my advice, you won't. Ah, the hilarity of it all!

[copious.abundance]

Looks like this shale also extends into northeast Texas. And it's not just Chesapeake that's involved in the play.
LINK <--
$this->bbcode_second_pass_quote('', '[')b]Penn Virginia shares rise on drilling success
Fri May 30, 2008 6:16pm BST
Oil and natural gas producer Penn Virginia Corp's shares rose almost 19 percent to a 52-week high, after one of its wells in east Texas successfully tested for natural gas.
Penn Virginia said it completed its first horizontal test well exclusively targeting the Bossier (Haynesville) Shale formation in east Texas, which has been described as one of the richest fields of natural gas in the region and has the potential to overshadow the Barnett Shale.
The company said the well had an initial production rate of about 8.0 million cubic feet of natural gas per day with a flowing casing pressure of about 5,000 pounds.
"We have an acreage position of approximately 53,000 net acres in east Texas, much of which is expected to be prospective in the Bossier Shale," Penn Virginia Chief Executive James Dearlove said in a statement.
He said additional wells that the company plans to drill in 2008 should help define the full potential of the area.[...]

[BigTex]

$this->bbcode_second_pass_quote('texasgirl', 'C')an you send me a contract? Also, know that our attorney will review and make modifications before sigining any contract.
Below is our property information.
Contact me at texasgirl

[ROCKMAN]

TexasGirl,

I've been working as a petroleum geologist for over 30 years in Texas. Here's some free advice for dealing with your mineral assets: don't bother with any of us helpful folks you find out here on the net. First, if Chesapeake or any other oil company wants to lease your land they'll contact you. There are lots of folks out there leasing mineral rights with no intention of drilling. They plan to resell to the oil company. Sometimes this actually makes a company walk away from a leasehold (to complicated to explain why in this forum). These brokers will commonly say things that cause you to assume you're dealing with the company directly.

Second, the good news: it's really very easy easy to handle your situation. If someone contacts you about leasing your minerals just tell the "Great!!!". And the tell them to send you a written offer and you'll forward it to you lawyer for review. (I'msure there's a lawyer within an hour or two from you that won't charge more than a few hundred $ to review....lease form are fairly standard these days. If the person who contacts you tries to convince you to do bisiness with them in any other way tell them to go to hell and don't call back.


Rosebud -- find the original ease agreement and have a lawyer review. But also: almost all leases allow the lease to continue as long as the well continues to produce commercial quanties of hydrocarbons. The original lease might have had a "primary term" of X years but the lease will stay in effect for however long a well produces. I know of leases that are still "held by production" over 50 years after the original lease agreement was signed.

[joeltrout]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')exasGirl,

I've been working as a petroleum geologist for over 30 years in Texas. Here's some free advice for dealing with your mineral assets: don't bother with any of us helpful folks you find out here on the net. First, if Chesapeake or any other oil company wants to lease your land they'll contact you. There are lots of folks out there leasing mineral rights with no intention of drilling. They plan to resell to the oil company. Sometimes this actually makes a company walk away from a leasehold (to complicated to explain why in this forum). These brokers will commonly say things that cause you to assume you're dealing with the company directly.

Second, the good news: it's really very easy easy to handle your situation. If someone contacts you about leasing your minerals just tell the "Great!!!". And the tell them to send you a written offer and you'll forward it to you lawyer for review. (I'msure there's a lawyer within an hour or two from you that won't charge more than a few hundred $ to review....lease form are fairly standard these days. If the person who contacts you tries to convince you to do bisiness with them in any other way tell them to go to hell and don't call back.


Rosebud -- find the original ease agreement and have a lawyer review. But also: almost all leases allow the lease to continue as long as the well continues to produce commercial quanties of hydrocarbons. The original lease might have had a "primary term" of X years but the lease will stay in effect for however long a well produces. I know of leases that are still "held by production" over 50 years after the original lease agreement was signed.

[ROCKMAN]

Joel,

So right about the prices over here. But as you might guess those are the tracks close to where the big players have been drilling. And I'm sure you know how the independent brokers go nuts at times like these. I'm on the drilling end of the play so I don't have an idea how the lands deals are currently trading even by my client (have about 25 well drill in the trend now)

Neatest mineral company play I ever saw was over 30 years ago when Tenneco bought the Kern County Land Company out your way so they could get the minerals rights. But the surface rights came with it. This explaned all the flavored almond dispensers in Tenneco's Bakersfield off. I think the ag company was called Blue Diamond. I think they got some vineyards too but the wine never made it to the office.

Money is money....but free nuts....can't beat that.

[copious.abundance]

Article on the growth in US natural gas production on the EIA website, just out today.

--> Is U.S. natural gas production increasing? <--
$this->bbcode_second_pass_quote('', 'R')elease Date: June 11, 2008
Is U.S. natural gas production increasing?

Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.



[...]

[ROCKMAN]

OF2 and Seahorse,

Increased NG production does fall into a good news/not so good news category.

Gas deliveries are up due to two key factors: Increased gas prices and improved technology. Vitually all the unconventional gas and tite sand reserves have been known by the industries for decades. But the relatively low flow rates combined with low prices made them uneconomic. But as NG prices began rising indutry could work on improving technology while achieving some financial reward.

It has turned into something of a "perfect strorm" for such exploration. Improvements in horizontal drilling and fracturing these hard rocks have exceeded the expectaions of most in the industry. Combine that with the very widespread nature of the plays (millions of acres of open leases across dozens of states) the opportunities seem almost unlimited. I'm working with an operator in an area where they are competing with Chesapeake. The biggest hold up at the moment is a near shortage of steel pipe to complete the wells.

BUT here's the other shoe dropping on this story. The biggest reason why these plays have caught on fire is that the intial production rates are fantastic. Even with the sky high driling costs it's not uncommon for many of these wells to payout in less then 12 months. As such they can yield a 50% to 100% rate of return. The not so good news is that they decline very fast...much faster then the conventional gas reservoirs of old. Some decline at 50% to 80% per year. They can last a long time but at a very low relative rate. A well could produce a net income of $200,000/month the first year, $50,000/ the second year and then perhaps as low as $5000/month the third year. But it might average tha $5000/month for the next 10 to 20 years. I deal with economic decisions regarding such drilling opportunites every day. You might be surprised to hear that the ultimate recovery from such wells is seldom part of the economic analysis. It's the high probability of commercial success and the high rate of return that drives these plays. This is why we should temper the ultimate recovery numbers thown out about unconventional gas reserves. They may be accurate but the recovery rate is slow and requires a constant supply of huge amounts of capital.

These plays are not so much driven by the ultimate amount of NG they will produce but more by the high rate of return. Cheasapeake, like most of the public companies in these plays, are posting huge increases in income but only because they are drilling more and more of these type wells. In a way, it's something of a trap for a public company: if they stop drilling their income will fall off sharply within a year or two. This would basicly present a picture of a dying company. They would still be tremendously profitable but they would lack the asset growth potential that all public companies are judged by. Just yesterday a big independent (XTO) announced the purchase of Hunt Petroleum for $4 billion. They bought Hunt for their huge acreage positions in the tite gas play in N TX. I actually witnessed a public conpany (UPRC) destroy it self over 20 years ago by developing an oil play in Texas (the Austin Chalk). They drilled over 600 very commercial horizontal oil wells and developed a tremendous cash flow. But eventually nearly all the potential drill sites were completed. As production rapidly fell off and they had nowhere else to drill to offset the declines they went from a darling of the stock market to the biggest dog around. They could not find enough new prospects to drill to make up for declining income. Eventually they were sold for "scrap".

The Chesapeakes have no choice but to drill or die. Which is great news for the NG consumers in the US. But if for some unforeseen event NG prices drop significantly over a couple of years this gravy train would slow greatly and NG production would drop must faster than anyone could imagine.

But my bet is that won't happen short of a true economic depression in the US.

[copious.abundance]

$this->bbcode_second_pass_quote('ROCKMAN', 'I')n a way, it's something of a trap for a public company: if they stop drilling their income will fall off sharply within a year or two. This would basicly present a picture of a dying company. They would still be tremendously profitable but they would lack the asset growth potential that all public companies are judged by.

[joewp]

$this->bbcode_second_pass_quote('OilFinder2', '')$this->bbcode_second_pass_quote('ROCKMAN', 'I')n a way, it's something of a trap for a public company: if they stop drilling their income will fall off sharply within a year or two. This would basicly present a picture of a dying company. They would still be tremendously profitable but they would lack the asset growth potential that all public companies are judged by.

[copious.abundance]

$this->bbcode_second_pass_quote('joewp', 'I')nteresting comment OF2, and perhaps quite revealing. It begs the question of how much your postings here are driven by optimism and how much by the prospect of personal gain. It would be interesting to see your investment portfolio compared to the companies you highlight here. Like how many shares of Chesapeake you own, for instance.

Just wonderin'.