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 ongoing shale 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 depleting which means while still producing a level of shale gas, in many cases it is significantly less gas then when they first came online. The total output of depleting wells can still result in a significant amount of natural gas. 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 depleting came at the cost of between $3 million to $4 million per unconventional shale gas well required billions in capital investment. The speed at which these wells are dropping in production output is much faster than conventional vertical natural gas wells. 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 depleting and 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 producing less than newly drilled wells.
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 decline 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.
Correction to the original article: When first posted for publication, the author mistakenly used the word “depleted” to describe the majority of wells in the Barnett formation. The wells should have described as “depleting” and corrections have now been made to this article. Bob Magyar ventwing.com.
To see the updated University of Texas, go to: http://www.beg.utexas.edu/info/sloan_barnett.php
To learn about Corriazo Oil’s sell off of it’s Barnett assets, go to: http://fuelfix.com/blog/2013/09/04/carrizo-oil-gas-to-sell-off-barnett-shale-assets-and-focus-on-oil/?cmpid=eefl
Disclosure: The writer does not hold any U.S. securities in any shale gas development company nor he have any financial arrangements with any of the entities or persons listed in this article. He is not being to write for any environmental or anti-fracking group.