Depletion "Type Curves" from company websites show a dramatic drop in production after one year

The "Type Curves" from many of the company presentations seem to indicate that the gas/NGL output from horozontal wells will fall by ~75% within one year, and oil by ~50%.   Page 36 from the Antero presentation is one example.  Am I intrepeting this accurately?  Any comments will be appreciated.

 

http://www.anteroresources.com/wp-content/uploads/Company%20Website...

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Permalink Reply by Area Man on February 19, 2013 at 3:20am

Yeah, pretty typical for an unconventional gas play.  The whole reason the hydrocarbons are still there and hydraulic fracturing is needed in order to produce economic quantities is the permeability is generally low.  Once the easy stuff flows from very near the wellbore, the rest takes a long time to migrate and you see a steep decline.

Similarly, as mentioned/asked in another thread here, this is why the recovery efficiencies tend to be low and a lot of hydrocarbons are left in the ground.

Hope that helps some!

-AreaMan

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on February 19, 2013 at 4:11am

They "expect" steady production because the SEC allows them to book the value of their wells based on their out and out guesses.  Most shale wells (Barnett, Haynesville, Fayetteville) have a much higher terminal decline than the companies initially thought and the EUR is usually half of whatever number they initially estimate.  Barnett wells that CHK has booked as lasting 60 years are lasting on average four years.  That's some really bad math.

Permalink Reply by Karen Bagdes-Canning on February 26, 2013 at 3:04pm

Good reporting Matthew.  These companies came in lying and they will continue to lie.  Hopefully if you leased you  will not lose your water or lose value in your home, or be sued by your neighbor. 

Someone said at a meeting long ago, if they are not paying you the value of your home and property do not sign. 

Permalink Reply by LERRET on February 22, 2013 at 3:56am

It is refreshing to know as someone stated below not everyone drank the Koolaid. I was very early in the Fayetteville and was pillared by the so called professionals when my decline analysis was suggesting these decline curves are power law declines that would deplete far more rapidly than anticipated. Arthur Berman was cut off from writing a column for World Oil for making just such statements. He is dead on. Stop drilling and the production decline is dramatic.

I can only add to what others here are saying in that you the mineral owner who is going to have to pay POST-PRODUCTION EXPENSES - a clause I warned time and time against as well as the general policy of NARO (national assoc. of Royalty owners) since at least the early days of the organization (1980ish)- are shafted.

I am now seeing post-production expenses that approach 50% of your check. This suggests more than just the mineral owner not making any money. It suggests that expenses for these gas companies is rapidly approaching the economic limit at $2.50 gas. Without the infusion of foreign forms of bottom feeding suckers...aka mullets..this play would come to a dead halt until prices improved.

Permalink Reply by Mark Thevenot on February 26, 2013 at 4:46pm

Accounting practices such as the valuation methods you mentioned and GAAP in general are a problem - and of course the SEC has proven itself  worthless(Bernie Madoff comes to mind and don't forget the recent disaster in mortgage backed securities and the housing collapse). If you lump in the fact that the Rating Agencies(Moodys,S&P,Fitch etal,) which we overly rely on, are mostly incompetent fee seeking bottom feeders that hire mostly inexperienced analysts to do their field work, then it is easy to see why everyone should have a total lack of confidence in economic predictions and estimates,especially the Govt's. The only real gauge is to watch is where  private and foreign public and private capital is being spent, and it is being spent in the shale industry for the moment. Let the Gov't invest in windmills and bio fuels and solar panels - I like shale oil and gas for now regardless of the decline curve. IMO

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on May 17, 2013 at 2:04pm

You know, Mark...another good comparison would be 'fishing tales' or 'the one that got away'?...who knows...ALL industries hire 'inexperienced'...our country? overall?

As one light lights another, nor grows less - so nobleness enkindles nobleness. WELL, it is good....but IF oil pushes above $100...the other MC2 co.'s WILL be looked at more closely...I don't see CARS running on 'air', though.

---------------------------------

WOULDn't it be cool IF car's motors could have a 'linked control' between the driver, motor & driving speed? KEEP cars 'the same', just install a 'safety feature' between the GPS & the motor acceleration control module that when IN a town or going past a school - that the vehicle would be limited to 25/35 miles an hour? It CAN be done. - whether an electric or gas powered vehicle. We are at a unique crossroads - again (perpetually are...). 

What has changed, what has stayed the same?...changes-everyday, same-always.

As one light lights another, nor grows less - so nobleness enkindles nobleness.

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on May 17, 2013 at 1:48pm

It's more than 'bad math'...THAT is exactly why the Tech boom crashed in the late 90's...because Tech. Co.'s would 'book' orders & then for their 'balance sheet' - they'd look like a dream come true...took a bit to catch on to this...

OK you said that CHK shows the Barnett wells as lasting 60 years or so...so are they taking any 'discounts' on those WRONG presumptions/calculated predictions? They aren't 'cookin' the books' are they? THAT would be the only reason for doing this. Drake's well? Spindletop?...60 years?...think about it that way & it DOES sound absolutely ludicrous! If it smells like a fish - probably IS a fish!

...Marcus...you are indeed saying that *the SEC ALLOWS THEM to book the VALUE of their wees - based on their input & output GUESSES?!...I'm sorry...can you PLEASE CLARIFY that statement for me so that it is a bit more understandable? I just don't understand that...and WHAT exactly does this 'mean' preytell?

As one light lights another, nor grows less - so nobleness enkindles nobleness.

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on February 19, 2013 at 3:23am

Hiker,   I looked at the Rex Energy slides on wet gas and saw a 50% drop off in production the first year, a reduction again by half to 25% by the 3rd year, then the production stabilized at 10% at year 5. 

When the royalties start, it would be wise to know the production drop off rate for wells in your area so as to not overspend or fail to give those in washington the "Entitlements" they have grown accustomed to.

 

 

Permalink Reply by Aaron Brown on February 19, 2013 at 4:33am

Ok, work with me on this.  I have heard, perhaps incorrectly, maybe someone will confirm, of Utica royaltyholders getting approx. $70 per acre per month.  So lets assume one acre. So using the REX Energy decline curve- For the 1st year, you get $70*12, or $840, the 2nd year $840*.5 or $420, the 3rd year $840*.25 or $210, the 4th year the same I guess, and the 5th year on when ‘production stabilizes” would be $840*.1 or $84.  Lets assume that goes for 10 years.  So, over 15 years, you have been paid $2,520 in royalties.  Is that possibly correct?  One thing I heard 100 times when leasing rights is “Do your best to get what you can in upfront bonus payment, but remember the real money is in the royalties, so get that % as high as possible”.  In my example, the “total royalties over 15 years” does not even approach what many have been paid for an upfront bonus.  What am I missing?  Maybe the royalty is $70 per day per acre, maybe that’s where my math is off!!

Permalink Reply by Joseph-Ohio on February 19, 2013 at 4:36am

The way I read you Aaron, you're not missing much at all.

Especially the part about getting as much so called 'up front signing bonus money' as possible !

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on May 10, 2013 at 5:32am

Agreed - even better yet is to have an addendum written something like this:

"Lessee shall pay to Lessor a One Time *Delay (*CROSS OUT word 'delay'!) Rantal of $$$xxxx (SPELL OUT $$$ amount - also add 'USD' following $$$ amount) flat fee, to be paid within thirty (30) days of Lessor's signature in this lease."  

...there is more, but this is good to 'protect oneself' AND get paid - not just the $10 to 'hold the lease. Get your money, honey (IF they don't have to pay you NOW, they certainly won't). Know what you know what you know...

As one light lights another, nor grows less - so nobleness enkindles nobleness.

Permalink Reply by David Perotto on February 19, 2013 at 5:47am

Aaron,

Your logic is good here. The only variable where you may be off is the starting point of $70 per month. That figure could be after the initial decline curve. So if this $70 is after year one and not the initial figure, your estimate would double. The other variable is what type of area is the well in. If the well was in a productive  wet gas area, your starting figure would be much higher. This leaves quite a wide range of total royalties for this ten year projection.

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