Tuesday, January 1, 2013

Industry Experts Know Less Than College Professors and Journalists About Shale Gas Economics

A recent article by Ken Maize in Power mistakenly assumes that university professors who have never worked in the oil and gas industry know more about evaluating oil and natural gas well economics than industry professionals who have spent their careers doing this work.

In "Is Shale Gas Shallow or the Real Deal?", Maize cites Dr. Terry Engelder's opinions about shale gas versus ours.  Terry is a friend and colleague who I respect and sometimes participate with in panel discussions about shale gas.  He is a late adopter of oil and gas reserve forecasting after a career in structural geology.

Maize confuses Terry's work on resource assessment with our work on reserve forecasting because he is a journalist and doesn't understand this important distinction.

Resources are the total volume of oil and gas regardless of cost, while reserves are the small fraction of resources that can be produced commercially.

The debate is simple.  Are shale gas wells commercial failures or not?

Rex Tillerson, the CEO of ExxonMobil, stated about shale gas, "We are all losing our shirts today." Mr. Tillerson said in a talk before the Council on Foreign Relations in New York. "We're making no money. It's all in the red."

Independent evaluations of shale gas plays by the United States Geological Survey, the Bureau of Economic Geology (University of Texas at Austin), and the Louisiana State University Center for Energy Studies all corroborate our well reserve estimates for shale gas wells.

There is no debate.  Maize's article is contrived and Engelder is wrong.

8 comments:

Anonymous said...

Thanks for the update. We keep reading about improvements in drilling techniques - multi-stage, multi-pad, reduced drilling times and better EURs.

The natgas supply keeps coming even when the price is less than half your full cycle dry shale gas cost.

How much of the improvement is due to the E&Ps zeroing in on the best part of of the deposit vs. technology improvements? Are you adjusting your models to account for the industry improvements, or will the move from the sweet spots of the deposit to the fringe areas more than make up for the productivity improvements?

Arthur E. Berman said...

The improvements are questionable. The Bureau of Economic Geology puts a 1% per year figure on those efficiency gains and I agree. Drilling costs decrease but are offset by completion cost increases. In my 35 years of industry experience, service costs always accelerate beyond product price.

Anonymous said...

This doesn't affect the debate but Claytie Williams was never elected Governor of the State of Texas as is attributed on the autographed cover of Time.

JJ2000426 said...

Arthur:

I have been following you since I knew your name. I agree with your take on the US shale industry.

Could you care to read and comment on my latest writting, a case study of the real EUR versus what the producer projected. I believe you will like it, as it is a compelling case to show that producers over-estimate:


The Real EUR of EOG's Bakken Shale Wells

Thanks for your attention.

Mark Anthony
http://seekingalpha.com/author/Mark-Anthony/articles

JJ2000426 said...

Read my other writings on shale wells:

Mark Anthony

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The actual changes tend to be sketchy. The actual Office of monetary Geology sets the 1% each year you'll need these effectiveness benefits and i also agree. Positioning expenses decrease but they are offset through achievement cost improves. Inside my 35 many years of industry experience, service fees usually speed up outside of merchandise value.

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