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 Bill Hill on February 21, 2013 at 8:30pm

Hey Aaron lets say the well makes 600,000MMCF over its life of say 15 years. assume 15% royalty and a gas price of $3.80/MCF.  Further that each well drains 320acres. so:

600,000 X $3.80 X .15 = $342,000 for the 320acres or $1,069/acre over 15 years

I thought I saw a Marcellus well had an EUR of around 6,000,000MCF or 6BCF which would mean $10,690/acre over ten years.

These calcs assume a drill spacing of one well per 320acres, but that is expected to go to 160 and then 80 acres, or the production per acre will multiply by maybe 2-4 times before the acreage is done. Also I have not included any produced oil/condensate.  hope this was helpful.

Permalink Reply by Joseph-Ohio on February 19, 2013 at 10:14am

How does one come to discover the reason behind production curves dropping off ?

Are there less resources ?

Or is the production being throttled back ?

Call me the eternal cynic - I don't mind - I've been called much worse over the years !

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on February 19, 2013 at 10:23am

Matrix permeability, Joseph.  Once the fracture fluid has all come out of the hole (typically two years in a shale formation) you're left with only the permeability that existed before the well was drilled.  The fractures created by well stimulation are sufficient to get the well flowing quickly, but once that energy is dissipated out through the well bore you're left with a tight formation that may or may not yield additional profitable production.  This is one of the reasons why shale plays are economic disasters if they don't carry a liquid or oil component to them.

Permalink Reply by Joseph-Ohio on February 19, 2013 at 10:30am

Sounds most reasonable Marcus, thank you.

However, I still can't eliminate 'Market Manipulation'.

Maybe there are those developers who want to wait for higher prices for their production and in the meantime throttle back the flow ?

It wouldn't be the 1st time to happen would it ?

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on February 19, 2013 at 11:02am

Throttling production is certainly a real practice, but that ultimately has no negative effect on the decline once a well is put into production.  Throttling would make the well produce for a longer time but it wouldn't increase the EUR.  The decline curves are real and they're pretty wicked.  It's nice to see Antero come out and say publicly what I've been telling people on here for the last two and a half years.

Permalink Reply by Joseph-Ohio on February 19, 2013 at 11:15am

I understand that there would be a difference between 'natural production permeability matrix decline ' and any given developer choosing to 'throttle' production - apples vs. oranges.

I don't know if the 'Type Curves' everyone is reading / interpretting consider one or the other or a combination of both ?

Not knowing for sure I can't rule anything out ! 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on February 19, 2013 at 11:21am

The type curves have been the point of contention in the shale business for a few years now.  The truth is that declines eventually stop and wells stop producing.  The problem is that the way many companies calculate these declines allows the wells to produce at a terminal rate literally forever, which is of course impossible.  If you want to get an idea of what the other side of the coin looks like Google Arthur Berman and read his stuff.  He's the loudest voice in the world of shale skeptics and he's ridiculously bright.  He also doesn't have an anti-fossil fuel agenda, so you can read his works knowing that he isn't some filthy hippie.

Permalink Reply by Joseph-Ohio on February 19, 2013 at 1:00pm

Thanks once again Marcus.

Permalink Reply by ji on February 20, 2013 at 11:06am
Interesting reading. Thank you Marcus.
Permalink Reply by Jack Straw on February 19, 2013 at 11:56am

Steep decline curves are inherent to tight (low porosity/low permeability) rocks; be they sandstone or shale. It is only through the practice of horizontal drilling opening up a large portion of the formation to the borehole and the application of multi-stage fracing that allows for any chance at economic production.

 

What initially made the Marcellus Shale attractive to exploit was the fact that the “Flush Gas” of the first two years of production was sufficient to payout the sunk costs. This model worked so long as Natural Gas prices were sufficiently high. As we know, the Marcellus landrush led to a glut of Natural Gas and a collapse in prices … this in turn resulted in the migration of rigs from “dry” gas areas to the “wet” areas of the Marcellus and to the “wet” areas of the Utica Shale.

 

The exploitation of the “wet” areas of the Marcellus and move to the “wet” areas of the Utica Shale was attractive because of the high prices allotted for ethane, propane, butane and condensate. As we now know, the “wet” gas landrush led to a glut of ethane, propane, butane and condensate … and a collapse in prices for those commodities.

 

We are at a juncture where both infrastructure and increased demand are needed to solve the problems of stranded commodities and the current glut in supply.

 

The steep decline curve in some respects is both a friend and an enemy.

The supply glut results in less drilling, while the steep decline curve more quickly brings the supply and demand situation in balance. The steep decline curve places Operators on a treadmill; to maintain production the Operators are required to drill at an ever increasing rate … absent such drilling, production will quickly drop (due to the nature of the steep decline curve).

 

The cure for low oil and gas prices are low oil and gas prices.

Low prices result in increased demand (demand encouraged by the low prices). At the same time, the low prices throttle in new drilling and production, which ultimately results in supply shortages. And, supply shortages lead to higher prices. Higher prices leads to increased drilling that leads to increased supply, that increased supply leads to low oil and gas prices.

Boom and bust cycles have been the underlying history of the Oil & Gas industry; going back to Col. Edwin l. Drake. The current bust cycle will set the stage for the next boom cycle.

 

All IMHO,

                   JS

Permalink Reply by Joseph-Ohio on February 19, 2013 at 12:57pm

Jack,

If there were a shift to natural gas being assigned a greater role in electrical energy production, transportation, and I guess (as much as I hate to suggest it even to friendly states) export - it would seem to me to be a driver that would increase prices and demand more drilling. 

I also think there would be a major associated spin-off of ecological and economic benefits to consider by such a paradigm shift to natural gas (from other fossil fuels, nuclear, or wind and solar).  Economic benefits such as job creation over a great range of industries and increased revenue to government (without raising taxes).

I still say Giddyup with natural gas ! 

Permalink Reply by Joseph-Ohio on February 19, 2013 at 2:13pm

What I should have made more clear in my post above is that there would in my opinion be more ecological and economic benefits realized to shift the paradigm to natural gas as opposed even to wind and solar as wind and solar cannot be relied upon by all of the consumer  base all of the time; conversely as natural gas can be (at least until we run out of it).

Also, it buys us time - time to develop wind and solar on a more grand scale.

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