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 David Perotto on February 21, 2013 at 11:03pm

Ron,

How correct you are! If the cost to drill a well is a cool 8 million and the landowner gets 18% royalty, round off the costs to 10 million to get a well completed. Divide that by 130 acres, this nets you an approximate cost of $7500 per acre. But the well only produces only $70 per acre per month? - not very likely. These companies know what they are doing, Get yourself a good lease and hang on for the ride. 

015334grltd9mPermalink Reply by 015334grltd9m on February 22, 2013 at 1:45am

Yes Dave, like you I am a businessman.  Many can create a utopic or hellish situation and back it up with selected numbers, just like our gevernment.  Good businessmen follow the numbers and we know REAL numbers don't lie.

I was here when CNOOC pumped $2.5 billion into Eastern Ohio.  I was here when Total of France pumped another cool $2 billion in.  I was here when Shell paid every landowner $3250 an acre and Hilcorp paid us $5000.  Yesterday I drove all over Poland township here in Mahoning county and witnessed pipelines en masse being laid all over the place, everywhere.  Two years ago the massive V& M Star steel mill rose like a phoenix when no one ever thought the steel mills in the Valley would return, and they make pipe, gas and oil pipe.  You see, a seasoned businessman follows the money and I never seen so much money before.  And believe me I am leaving out so much more investment.  Remember all this is only two years old.

So when I read negativity, I know it is not caution but propaganda for some unknown agenda.  But so far, I don't believe for a minute that like the hoax moon landing and bigfoot, that the supermajors are spending billions to CON little old Me.

Permalink Reply by mark o on February 22, 2013 at 2:47am

well said ron!

Permalink Reply by Bluflame on February 22, 2013 at 3:11am

Ron,

 To your investment list, I'd add the $$B that several companies are investing in midstream processing facilities. Until those come fully on stream this year and next, we will not have a true financial picture of the Utica Play. Right now many if not most Utica wells are plugged or choked back awaiting midstream processing capacity.

  IMHO, I believe we'll see a flood of NG & NGL's hitting the market this year and next, keeping prices low, followed by a gradual price recovery. The low prices are not necessarily bad, as they will stimulate creative uses of Utica resources. We all need to have a long term perspective, which the O&G's you note certainly have. In fact even now, CNOOC & Total must be licking their chops when they compare local NG & NGL pricing to prices in their respective home bases.

BluFlame

Permalink Reply by Trapper on May 17, 2013 at 2:28pm

Absolutely Ron! Just look how much was paid to Mahoning Twp. (PA) for a pipeline row. Exponentially more than any landowner has been offered. There's a ton of money to be made or the outlay of cash would not be so great. I agree , there are more than a few naysayers on this site with questionable motives. No way these big boys would have gotten involved in this play if it wasn't something very special and very , very lucrative. They ain't B.S.'ing this "hayseed"!

Permalink Reply by LERRET on May 17, 2013 at 5:07pm

In the Haynesville, how fast was the rug pulled out when the economics turned against it?  The Barnett?  The Fayetteville?  33 rigs became 9 rigs running there....

 

Protect yourself. I just appraised an estate for a family where the deceased took some of his lease money and bought a chunk of leases in the county to the north....far north of any chance for production. Wasted money.  And then he had mismanged it so that his widow ended up having to sell the best leases just to pay estate taxes...

 

All shale wells deplete rapidly with the rarest exceptions.  I've run economics on perhaps 300 wells. The "power law" decline model has a "fat tail" meaning the well will produce at very low levels for decades...but as most landmen admit, if it has not paid out in 18 months, it ain't likely to ever return the investment.

If you think that these companies are laying out their own cash, you need to check out and see who is really funding the drilling....a hint. They live about 8000 miles away.

Permalink Reply by Dan on February 22, 2013 at 3:28pm

Matthew, those numbers: are they $/acre/day?

Permalink Reply by Dan on February 22, 2013 at 10:41pm

Yes, that seems low.  What part of the decline curve for those wells were you in during that year?  In other words did the wells start production in that year or had they been producing for a while.  If they started that year, how many months of the year were they actually producing?  With two wells in the one and three in the other, for the size of the units it doesn't seem that the units are fully developed yet.  One lateral drains about 150-200 acres, so it seems like each unit is only half developed. That would make the $/acre/day seem half of what it ultimately will yield.

Permalink Reply by Dan on February 23, 2013 at 1:53am

If you are saying that the 12 months of production you are reporting are not the very first 12 months of production, then wouldn't you be already down that steep decline curve we are talking about, and so should expect your royalties to be lower?

They may not come back and develop the other wells.  But it seems like they should.  They have already sunk the cost into developing the pad.  They have the unit HBP.  They can just wait for prices to go up and then develop the other wells.  That beats having to start over building a new pad somewhere else.

The reason I asked if your unit was fully developed is because all of these royalty calculators assume that the unit is fully developed.  The one I'm using for my "what if" scenarios has cells to fill in for how many legs are designed for the unit, and how many are currently planned.

015334grltd9mPermalink Reply by 015334grltd9m on February 22, 2013 at 3:20pm

Matt, I get it.

Until we can market the NG and realize the true value, we will suffer oversupply locally.  But remember the local price is not the true market.  My position when leasing our clients acreage was only to lease a fraction, I am glad I did.  I would rather wait for the infrastructure to be completed to allow supply of the global market than selling mine and my clients minerals at a glut price.  I tend to look at things globally than locally, I guess I learned from growing up outside the country.

Remember the saying "buy low, sell high?"  The energy companies unestimated their production so they are buying high and selling low.  It will change once the spigot starts flowing out of the country. 

Permalink Reply by Joseph-Ohio on February 22, 2013 at 4:55am

Thoughtful landowners have to take a clue something's up when they hear about those others who attempt to beat up the landowners prior to sufficient test bore / well data / leasehold offers being made.

All the gaming mostly does is delay progress if you ask me.

There are enough hurdles in the way.

Everyone needs to stop fooling around and get with it.

Having said all that I'll also add the question: "Why would a thoughtful landowner assume the beatdown will stop once their paying well is commissioned and royalty payments begin ?"

J-O (Ashtabula County Group - 'Oil Window')

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on February 22, 2013 at 6:06am

That thing is tragically overconfident.  I actually laughed when I read that.  The best part was the "based on the Barnett..." projection.  If it was really based on the Barnett then the well would be pretty much dead by year four, as that is the mode life of a Barnett well to date.

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