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 Jack Straw on March 4, 2013 at 11:12am

RE:  "I've read reports that Schlumberger has successfully experimented with re-fracking HZ wells in the Barnett Shale. According to the account I read, they re-fracked after 2-3 years production resulting in the well(s) recovering to beyond IP rate."

The Barnett Shale is where Geoge Mitchell (of Mitchell Energy) perfected the technology that opened up the unconventional shale drilling with long offset horizontal wells tied to multi-stage fracs.

It is my opinion that every shale play is a bit different. What works in one place will benefit from some "tweaking" to best work for another shale.

I have heard references that the Marcellus wells will benefit from a re-frac after 6-8 years. I have heard references that the Marcellus wells will benefit from a re-frac after 12-14 years. But, all I have heard are really guesses; until someone has the courage to proceed with re-fracing in the Marcellus or Utica, all we can do is guess.

RE: "The cost of the re-frack is "fairly low", whatever that means, but certainly a fraction of initial drilling and well development costs."

It is my understanding that the frac of a Marcellus or Utica horizontal  well represents a substantial portion of cost of drilling and completing that well. I would be surprised to learn that the costs of a re-frac would be categorized as  "fairly low", time will tell.

I expect that re-fracing of Marcellus and Utica horizontal wells will take place.

And, I expect that there will need to be experimentation to determine when, where and how to best accomplish this. There will be numerous factors  to consider - not the least of these the current price of the commodities.

And, I suspect that such experimentation might await significantly more attractive commodity prices.

It is my opinion that re-fracing will occur when the Operators have sufficient encouragement from what might occur in the Barnett Shale ... and re-fracing will occur when the Operators see commodity prices that sufficiently entice them to proceed.

Right now, Operators in the Marcellus and Utica are more likely to use their limited available resources to consolidate their positions, pending improved prices and mid-stream infrastructure. 

Right now, Operators in the Marcellus and Utica are more likely to "hang tough", awaiting better times. Right now, available cash flow associated with depressed commodity prices is depressing activity.

 

All IMHO,

              JS

Permalink Reply by The Hiker on March 4, 2013 at 9:29am

" .... as the windfall will not continue at the rate of those early checks". 

You said it best:  This is the unfortunate fact of the depletion curve.  Folks see the fabulous IP numbers, and not realizing the implication of the curve, or even its existence, think these are numbers that will continue into the future.   Yes, should they not store their nuts, they will be sorely disappointed when the acorns stop falling.    These depletion curves were NOT publicized during the land rush, and land men, company personnel, flippers...you name it, actively buried this information, and instead made comments like "these wells will produce like crazy for 30 -50 years", and I'm sure a large percentage of leased landholders still believe it.   I mean, what proportion of the leased population reads this website, or digs into "type curve" discussions in their spare time?  Just folks like us, I guess.  I spread the word to all my leased friends about the "steep decline", so they won't be disappointed when the numbers start dropping.  I mean, everyone surely expects the production numbers to drop over time, but to see the expected return drop by 75% after the first year.....well that's a sobering piece of information that may stop someone from buying that new ______ (you fill it in).

Permalink Reply by Farmhouse on March 4, 2013 at 11:29am

UPDATE FROM THE MAILBOX:

Decline is depressingly REAL. And Two years of flush production may be optimistic.

Permalink Reply by Erik V. on March 4, 2013 at 11:56am

I know someone who is getting Utica royalty checks and they say they are declining almost 50% every month and are concerned if there is a stopping point to the decline.  They have only been getting the checks for a few months but the second check was about 1/2 of the first one, the third check 1/2 of the second and the fourth check was 1/2 of the third one.  Pretty steep decline but there is still some doubt as to how much they are actually producing the well.  I'm not sure what that makes the total decline rate to date.  I was never that great in math.  I'll keep you posted if I hear more. 

Permalink Reply by Jack Straw on March 4, 2013 at 3:15pm

A plot of the amounts received in a sequence of checks may not realistically represent a “decline curve”.

Amounts received will vary as the price of the commodity varies.

Amounts received will vary with whatever deductions the Operator might (arbitrarily?) choose to make.

Amounts received will vary if the production is affected by variable pipeline line pressure.

Amounts received will vary if the production is “throttled back” due to insufficient pipeline capacity to accommodate full production.

Amounts received will vary if the production is “throttled back” by an Operator who wishes to limit production during periods of low prices.

Amounts received will vary if the production is interrupted for maintenance (anywhere along the line).

If an attempt is made to create a “decline curve” based upon monthly distributions, this will not likely represent an accurate measure of what a true theoretical “decline curve” might be …. Too many its, whats and wherefores.

 

We can add the above to the many challenges and frustrations of a Landowner.

 

All IMHO,

                     JS

Permalink Reply by p umpjack on March 4, 2013 at 3:20pm

I think the industry term is called dpch

drill pay choke hold.....

Permalink Reply by Joseph-Ohio on March 5, 2013 at 12:40am

That's a huge reason for government subsidy and intervention to shift the fuel paradigm to natural gas.

More natural gas use will encourage development.

Our domestic economy will recover.

When I look at our government now I see a stagnant pond.

Our domestic businesses should spend their money and our government should spend our money to rebuild our domestic economy not the economy of other foreign states - and especially not the economy  of potentially hostile foreign states.

Also All IMHO

J-O

Permalink Reply by Erik V. on March 4, 2013 at 3:51pm

Jack,

You are correct in all your statements.  That's why I said something about this landowner not knowing how the well was being produced.  However, historical data shows shale wells are notoriously steep in their decline rates as compared to other oil/gas producing formations.  I've warned many, including this landowner, to not expect those initial production numbers the drilling companies report (primarily to boost their stock price) to ever come close to actual production.  Too many landowners  are using this production figure and then going out 20 years and coming up being gazzillionaires.  Some revised life of well numbers are significantly less.  I think the best advice in this thread was to make sure you have the money in the bank and taxes paid before calculating net worth. 

Permalink Reply by The Hiker on March 5, 2013 at 10:05am

The Eagle Ford Forum also has a discussion forum on depletion rates.   Take a look.   Here's a good Halcon presentation I stole from it that shows several Bakken and Utica type curves.  Not pretty.

http://files.shareholder.com/downloads/ABEA-5X1N65/2340156995x0x626...

 

Permalink Reply by melissa humphrey on March 18, 2013 at 4:47pm

Decline rates is a hot, hot topic. With respect due there is mass misinformation in this thread. No one could begin to correct it all. A few things: declines are the norm, all hyrdo carbon extractions have declines. Calling Marcellus steep isn’t comparing local results to norms. If anything Marcellus declines are moderate vs. what could be,. Data is slow coming but longer laterals, greater # of frac stages and thicker portions of the play appear to contribute to the moderate declines.

 

It is a rough guess but about 50% of the gas is out by yr 3.5-4. NOTE, few are in a unit with 1 well. I well does not drain 250 or 360 acres, it drains ~80-100. If you are in a 600 acre unit, the window of gas marketing is more drill pace dependent than decline curve. A unit with 1 well might see @2 in yr 2 4 or 8. It is out of control of the lessor. Generally the pace will pick up as economics improve, which is preferable to most royalty owners.

 

Wells showing abnormally low declines are throttled back, the operator is shooting to maximize total take over the life of the well.

 

Re-farcing etc may or may not happen, no gasco knows yet, let alone pedestrians.

 

If you are in a geo attractive area, be thrilled! Period.

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