US gas production to fall in 2006 despite rig increase
Frank!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
More rigs. Less gas. What's not to like? Back up the truck????
Washington (Platts)--27Nov2006
Improved drilling technology has ramped up the initial decline rate of new US natural gas wells "faster than your waistline after Thanksgiving dinner," Marshall Adkins of investment bank Raymond James said Monday.
The result of this is that 2006 US natural gas production will likely drop by 1.3 Bcf/d or 2.5% even after the addition of 15% more drilling rigs, he said.
"New production will not keep pace with production declines," Adkins said. "Accordingly, we reiterate our bullish stance as the domestic natural gas fundamentals remain robust."
Using figures from the US Energy Information Administration, Chesapeake Energy and a field decline study done by Houston-based EOG Resources, Adkins estimated a "conservative" 31% production decline rate in 2006 and 2007, while double digit increases in the number of working rigs would produce slightly less gas than needs to be replaced, he said.
Using Texas' Barnett Shale as an example, Adkins said drilling had increased "an astounding 360%," while production had increased 215%, as the production from new Barnett wells dropped off 65% in the first year, according to Oklahoma City-based Chesapeake Energy's data.
"That means the rig count must continue to increase by 21% (or 32 rigs) in 2007 just to keep Barnett gas production flat," Adkins said.
"Chesapeake's data shows that the average decline rate was 67% in the US, with a slightly lower average in emerging unconventional plays like the Woodford and Fayetteville shales," Adkins said.
New drilling technology is apparently a double-edged sword, Adkins said. While unlocking previously uneconomic unconventional plays, it also drives up the well decline rate as operators harvest more gas quicker than ever before, Adkins said.
"As operators have implemented better technology in previously uneconomic fields, they have been able to extract a greater amount of gas in a shorter time to make them economic," Adkins said.
"The initial first-year production per new well has declined by over 65% during the past decade," Adkins said, citing EOG data.
What has stayed constant through the years is the efficiency of drilling rigs, he said. Despite drilling deeper and more difficult wells, drillers have averaged 23 completions per year per rig for the last ten years, he added.
Starting with the EIA's estimate that domestic US production began 2006 at 51.5 Bcf/d, Adkins applies a 31% decline rate to arrive at a 2006 production decline of 15.5 Bcf/d. Assuming a 15% increase in drilling rigs from 2005 and 23 wells per rig per year, Adkins forecast new production would hit 14.2 Bcf/d in 2006; leaving a 1.3 Bcf/d shortfall, a 2.5% drop.
In 2007, using the same method, Adkins predicts that shortfall will shrink to 0.7 Bcf/d, assuming a 12% increase in the rig count.
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