Replies to This Discussion

Permalink Reply by Ann Ticopa on August 17, 2013 at 8:00pm

What realistic option does SWEPI have - other than to go into maintenance mode, drilling just enough wells to meet their commitments until the price of gas picks up?

Permalink Reply by N Bohl on August 17, 2013 at 7:43pm

Thanks again Scott. It is likely hopeful thinking on my part. Your comments about both East and Shell make total sense. Looking back - it seems that East had its eye on a sale for quite some time, I don't think they ever intended to actually develop on their own what they were leasing. I have felt that from at least the time the sale was announced - I write that only as an observation and not as any type of criticism of East and partners selling. It seems like the next 2-3 years would be crucial for Shell depending on the terms of the leases they now own. Perhaps the purchase will continue to be a disappointment. 

Permalink Reply by N Bohl on August 17, 2013 at 9:36pm

Oh, I was just commenting to Jack's impression that they might be. I have no idea how the various parts of Shell, related to this purchase, feel. Based on everything I have seen and heard the last years I get the impression that the county is not a total roll of the dice.  I know when leasing was going heavy maybe 5+ years ago some companies made leases that they went on to discover were disappointments but I am thinking about other counties and other companies and that seems to be the nature of the O&G business. If Shell could go back in time and not buy East's leases? / As far as I can tell the jury is still out. I hope it turns out to bea solid long term investment for them and that the county and its residents continue to benefit.

Permalink Reply by Jack Young on August 17, 2013 at 9:45pm

If you estimate what Shell has spent in Tioga County and the return they've had, it's got to be a disappointment. East was part owned by KKR, remember, and they know how to get the big guys to overpay! But as others have said, maybe Shell will get lucky in the end. There is no question that it's been a disappointment so far - Tioga just isn't like Bradford or the counties further east.

Permalink Reply by Ann Ticopa on August 17, 2013 at 11:26pm

I can see where Shell could be disappointed in how sharply the price of dry gas dropped.  But it didn't take any special knowledge - just the publicly available thickness maps - to know that some of what they were buying in TC wasn't "prime" territory.  And they did have the completion results  (but not production numbers) from the wells that the KKR buy-in financed.

In their recent quarterly report, Shell said that some of their North American wet gas interests hadn't met expectations.  But they have told Pbgh newspapers that they have no plans to leave PA. (Shell has announced that they are pulling out of the wet gas Colorado acreage that came with the ERI package.)

Which get us to the proposed ethane cracker.  SWEPI hasn't done as much drilling as one might expect in Lawrence and other SW PA counties.   It would be a "disappointment"  if that ERI acreage isn't meeting expectations.  Plus .... there are those oil wells in NW PA that were part of the deal. 

I could be completely wrong, but I don't think TC is a high priority for Shell right now.  Which is not necessarily a bad thing. 

Permalink Reply by Jack Young on August 18, 2013 at 8:17am

It's worth remembering that gross thickness isn't a particularly good way to identify the best areas for drilling. Looks at how little Marcellus they have southwest of Pittsburgh. There is so much more to the geology of these plays, and rock quality is the key. That's determined by a variety of measures, and varies greatly.

Permalink Reply by paleface on August 18, 2013 at 8:52am

 Total organic carbon (TOC) ,Porosity and Permeabilities.If you have those three your in pretty good shale.

Permalink Reply by Ann Ticopa on August 18, 2013 at 11:08am

Sure, thickness is a simplistic indicator.  But given it and the other information available to Shell pre-purchase, in what sense has TC been a  disappointment to Shell? 

That is, reasons independent of the decline in the price of gas? That disappointment has to be near universal among dry gas drillers. 

Permalink Reply by Jack Young on August 18, 2013 at 2:23pm

If only it was that simple. Thickness is probably the least important factor as long as you have enough quality formation to drill and complete horizontally. Shell expected better rock than what they've gotten, plus lower costs, easier pipeline approvals and better gas prices.

 

Cabot isn't disappointed - their dry gas returns are fantastic. Actually, there's a recent article in the Oil & Gas Investor magazine that suggests that top quality dry Marcellus is a better investment than most oil shale plays in the US. It's a good read.

Permalink Reply by Gringo on August 18, 2013 at 4:41pm

Cabot's break-even per mcf is around $1.60. Shell's is closer to $3.50 or more depending who you believe. In 2010 the prediction was gas would rebound to $6 in 11, in 11 they said 2012 it would rebound to $6. In 12 they gave up and said $4-6 for the foreseeable future thru 2020. Shell will someday turn a profit in TC, just not this decade. Good thing they have deep pockets and think long term. At least they weren't alone Exxon paid 41 billion for XTO.

Permalink Reply by Ann Ticopa on August 18, 2013 at 5:01pm

Jack:  You misread my comment.  I wrote "Sure, thickness is a simplistic indicator." (not simple indicator)

Simplistic = "Treating complex issues and problems as if they were much simpler than they really are: "simplistic solutions"."

Permalink Reply by Jack Young on August 18, 2013 at 9:19pm

I was replying to Paleface when I said that - this site doesn't give me the option to reply directly to his comment, however - I can only add to the list of replies for the earlier comment. Assuming that three characteristics of a shale will tell the tale is simplistic. As I said before.

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