DEPLETION RATES : FACT -OR- FICTION..............?

We hear about drastic decreases in well production. My question goes out to our brothers and sisters who have been receiving royalties for a couple of years now. Have your royalty checks been shrinking so fast?

Folks in Tioga and Washington Counties should have a handle on this , I would think. Thanks in advance! 

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Permalink Reply by Jack Straw on March 14, 2013 at 10:42am

As Joe succinctly described, the steep decline curves are inherent to the very nature of tight (low permeability) rocks.

With long offset horizontal wells and multi-stage fracing, we have discovered the means to “squeeze blood out of a turnip”.

 

Rather than wail and pull out our hair because the spigot quickly dries up, we should be appreciative of that short shot of elixir.

 

We should be thankful that new technology has allowed the Shales of Appalachia to finally give up something (and something is a lot better than nothing).

 

All IMHO,

                     JS

Permalink Reply by wyalusing jim on March 14, 2013 at 11:02am

depends.

the opening post asks about decreasing royalty checks, and that depends on the operator and its' development plan.

an open flow well would exhaust gas in place very quickly, a couple of months, and subsequent production through desorption would be at a significantly lower rate. that rate depends on the permeability of the rock matrix, toc etc.

but all shale wells are choked. the choke determines the rate of flow and therefore to a great extent the decline rate for your royalty income.

as an example, cabot flows gas at what they consider to be a maximum practical rate, while chk holds all of their wells at a maximum flow rate of between 8-9 mmcf/d. (if capable)

after about 4 months a cabot well is in serious decline, while a good chk well at 2 yrs is producing approximately the same as day 1. of course the cabot well was blowing 30+ mmcf/d for those 4 months and so the checks from cabot were considerably higher in the beginning.

i've also noticed a tendency for an inclination in production rates in the first few months as the well exhausts its remaining frac fluids and "cleans up".

another factor which will affect production and therefore royalties is infrastructure. if you are receiving royalties from an older well with diminished pressure and your operator puts a fresh well into production through the same gathering line, your well may drop significantly in production until the pressure of the new well drops. of course compression can mitigate that effect.

 

wj

Permalink Reply by Trapper on March 14, 2013 at 3:39pm

Thank you wj.

You seem to have a clear interpretation of my question. The fact that some producer's wells deplete so quickly while other's do not sounds more dependant on how much they choke them back and transmission line pressures.........makes sense to me.

My concern over depletion rates is from the standpoint of a landowner with 51.64 acres leased and the effect I can expect to see this have on my future royalties. Pure and simple question I thought I could pose to other landowners who have been in production for these first few years of the play.

Thank you for your insight and helpful , practical information! Would you happen to know Shell's method in regards to choking flow to increase longevity and lessening the decline curve? I know they have been producing Tioga County for a while now. They are just recently selling gas into a line here in Lawrence County,PA from wells near me. I am not yet in a unit but am hopeful for the near future. These 2 aforementioned Shell wells reported a combined rate of 8.75 million cf per day over the last 40 something days of 2012. Could this indicate a pretty good choke and a decline curve planned to be less severe? I think it would be preferable to have a more steady income than a "short shot of elixir". Until you posted , I think we were all being given the impression that our royalties would practically dry up after the first year.........Thanks again!

Glenn

Permalink Reply by wyalusing jim on March 15, 2013 at 3:02am

glenn, i wish i could be more helpful regarding your particular situation, but my experience is limited to northeastern pa.

i can tell you that not far from wells which chk is producing at 8 a day for around 2 yrs steady, swn has wells which ip at a lower rate and drop much more quickly. whether that situation is due to inferior geology or different completion/production techniques i do not know yet.

also, in some areas, chk has wells that never produce 8 mmcf/d. those situations are related to geology i am pretty sure.

regarding tioga county, shell brought wells on either side of my property online at 10.6 and 10.9 a day, with declines similar to cabots. from memory, i think there was an approximate 40% decline in the first year. without knowing the details of how the wells were completed, (number of stages, etc.), i would only be guessing as to their true potential, but it seems that the geology in that area is somewhat inferior to se bradford and sw susquehanna counties.

your best bet is to gain firsthand knowledge of well performance from folks in units within a couple of miles of your minerals operated by the same company that will produce you.

everyones' individual financial needs/wants are different, but i agree that the way chk produces has several advantages. first, the steady production/income smooths out pricing bumps/troughs. secondly, for larger landowners, it helps to minimize the overall tax burden by spreading out the high ip income over several years.

best of luck to you!

wj

Permalink Reply by Trapper on March 15, 2013 at 3:41am
Thank you wj. Your insight is much appreciated
Permalink Reply by wyalusing jim on March 14, 2013 at 11:59am

with respect joe, pricing is not the only, and perhaps not the biggest factor in determining the size of a choke.

by choking and reducing the volume of gas flow, the velocity of the gas is also reduced, reducing the tendency of proppant to dislodge. this in turn results in more effective and longer lasting fracs which improve the decline rate also.

 

wj

Permalink Reply by wyalusing jim on March 14, 2013 at 12:50pm

joe, another aspect of reservoir management which is currently being played with is, letting a well "rest" after frac'ing.

as some anxious mineral owners await their first checks, they are annoyed by what seems an unnecessary delay of up to 6 months. the wells are ready, the pipeline is there, but there's no production.

this too could seem like a delay in marketing due to low pricing, but there is evidence that well production is enhanced by the practice.

wj

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 14, 2013 at 3:43pm

Rex's Brace Unit flowed five day sales rate of 1,008 BOE.  90 day rate was 515 BOE.  That gives you an idea of what happens (without knowing what the choke is, unfortunately).  So for a landowner's pocketbook day one was almost twice as good as day 90.  

Permalink Reply by Billy Park Whyde on March 15, 2013 at 12:59am

Walked up to a well head yesterday right before we started the first frac, patted the BOP and said be good to the landowner baby. Anyone know if they ever had a Pope bless a well? lol

Permalink Reply by Kathleen on March 15, 2013 at 7:12am
I want to do that here! FUN! I see security driving around though. Hmmmm I guess I could wait for them to leave :0)
Permalink Reply by Keith A Williams on March 15, 2013 at 5:34am

Jack,

I noticed that the scale on the graph is not linear. The curve would look much more pronounced if it was.

Keith

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