Depletion Rate

A topic I don't see addressed very often is the striking production decline rates of shale wells. A year ago, companies were finding Marcellus horizontal wells deplete about 75% the first year and 90% within 5 years. Link:

 

http://www.thefriendsvillegroup.org/declinecurve_range.pdf

 

Although the industry business model is to keep moving on and drilling (thus the beauty of the huge Marcellus), the impact of this decline is huge on individual landowners and their finite wells. A couple royalty calculators have recently been pulled off of the internet due to their failure to accurately project this decline. We are all focusing on the initial rate of production reports (average of 5 mmcfe, high wells of 13-14 mmcfe), and not the reality that ongoing royalties will be 10% of these initial calculations... Don't buy your yacht on credit.

 

Has anyone heard or read any current reports or experience on decline rates?

 

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Permalink Reply by Brian on April 1, 2010 at 8:15am
Yes the wells can be refraced to extend their life.

Pertaining to the decline rates of the wells, I was reading an OG company's transcript from a conference call last week and it stated that they are conducting operations on the basis that their horizontal wells will decline 75% in the first two years, and 6% each year after. It also gave reference to one well, which was an average producer, that has only declined 10-15% in 289 days. Then it went on to say that as the play is developed they will adjust their decline rates accordingly. As of right now, they just don't know. So none of us should be counting our chickens before they hatch.
Permalink Reply by Nancy Famiola on April 1, 2010 at 9:53am
Restimulation will happen every five years or so. It's like squeezing the water out of a shirt. The first squeeze you'll get the most water out and it trickles to a slow drip, then you turn the shirt and squeeze it again - more water will come out but the amount will only be a small amount compared to the first time around.

There is only a limited amount of gas in the system. I dont believe there have been any re-fracs in the marcellus yet, so people dont know the amount of gas these later frack jobs will produce. It won't be comparable to the first time around though, thats for sure.
Permalink Reply by Raymond Calhoun on April 1, 2010 at 10:08am
Brian,
If the 6%/yr. decline continues after a 75% drop, does that mean the well is essentially done after 6-7 years unless refracing occurs?
Permalink Reply by Brian on April 1, 2010 at 10:38am
No...here is an example of what I think they meant. ( I am by no means an authority on this subject.)

Say the well is producing at 5mmcf/d for Initial Production. Then 75% decline in the first two years would put it at approx. 1.25mmcf/d then drop 6% each year from that 1.25 and down. So the next year would be 1.175mmcf/d, then 1.1045mmcf/d.

This is speculative at this time. Like I said, they have only realized a drop of 10-15% in almost a year on the well they spoke of. So I think they are basing most of this on previous shale plays when in reality they don't know yet.
Permalink Reply by Raymond Calhoun on April 1, 2010 at 11:26am
Brian,
Thanks. My math brain went dead when I posed the question. You clarified nicely. ray
Permalink Reply by Sam Douglass on December 5, 2010 at 3:56am
As I understand it about 50% of the well's production comes the in the first two years.

I am guessing that since the horizontal wells are only 500 feet apart and gas is only being drawn from something over 250 feet after fracking that the producer expects to get most of what is available the first time around without going back and re-stimulating.

But nearly all of the leases being granted include not only the Marcellus, but every other productive strata. Apparently, there are several of them that can be drilled to from the same drill pads etc. - a considerable savings for the operator. And the operator is not paying anything for these other strata when ALL the oil an gas is leased.
Permalink Reply by Gary Sheppard on April 8, 2010 at 11:27am
If you haven't made use of the various royalty calculators that are online, the Penn State Extension calculator estimates payments by year with an estimated decline curve. (It also assumes a refrac after 12 years.) Obviously it is hard to predict what any given well will do but it at least demonstrates the reduction of payments that will happen as the gas is depleted in a well. http://extension.psu.edu/naturalgas/royalty-calculators
Permalink Reply by bill h on October 19, 2010 at 6:47am
Joe, where are you getting that 15% number?
Permalink Reply by Dave Stewart on October 20, 2010 at 3:57pm
There must be many members that have started getting royalty checks for wells that started producing in the past 18 months. The payment surely must include production data. If some of the members would post the results by month or quarter, that would help us all.

I understand that a "study" was done on the PA data. However, I am a little reluctant to accept the results unless i can see the details of the analysis. As someone commented, the data is production for a year. Unless I am missing something, it wasn't apparent to me that you could pull a decline curve off of the data as it was given by the state.

Even asking members to post "blind" results is tricky. Will the production be for a specific number of wells? Will it be for an acreage that is covered by part of a well? Or will part of the acreage not be producing? What is the thickness/location of the shale? The more details that are provided, the better feel we can have of what we might expect to see. Personally, I am planning on at least a 75% decline the first year with it decreasing slower in following years. And I don't hold much hope in re-worked wells. There just seems to be too much "easy money" for the drillers in new opportunities right now.
Permalink Reply by Tom on October 20, 2010 at 10:10pm
http://www.dep.state.pa.us/dep/deputate/minres/oilgas/OGRE_Producti...

This site gives you the production data. They report on a quarterly basis.
Permalink Reply by Dave Stewart on October 21, 2010 at 12:25am
Tom, thanks for the reference. The difficulty with the report is that it gives a total volume for a total number of days. That only gives an average production - not a decline curve. Now what we could do is look at the next 6 months of production PA will be showing early in 2011. If we compare that to the production of wells that obviously started producing in this report, we might get an idea of the decline. There will be some bad data - maybe a well was shut in for a period of time - that must be discarded. This will be hard to pick up on. And PA is only going to get production for 6 month periods. So it would take about a year or so to get a rough idea of what decline will look like.

I just think that people that started getting royalty payments in the past year or so should be sitting on the data needed to show typical declines. Better yet, would be getting the information directly from the producers. And I am sure there are professors at Penn State that have current decline curve information also.
Permalink Reply by Tom on October 21, 2010 at 8:46pm
I'm pretty sure they report on a quarterly basis. Someone needs to copy or print out some of these flow rates before they post the new figures. That will give you some indication of decline. What Mike said is very true however. There are many factors this early in the game. The Greenzweig well in Bradford County was producing 3.3 initially when it started up in July and now I understand it's up to 4+. My brain is sore trying to out-figure these energy companies.

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