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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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 1, 2013 at 8:24am

"You clearly you are not a petroleum engineer or accountant or even able to read."

This coming from the guy who couldn't add and then multiply two numbers.

"The spreadsheet is simply looking at the royalty from ONE well (ie one lateral) within an 640 to 1280 acre unit."

No, that's what we call a 'lie'.  The unit size was 99 acres.  I know this because it said so right there on the sheet.  If you're playing fast and loose with that math then what confidence are we to have in the other calculations?  That being said the if the unit is of proper size the only consideration needed is the overall production and the landowner's pro rated share of it.  Instead of just presenting those potential numbers you instead chose insults and evidently forgot high school geometry.  So please continue to tell me how dumb I am.  Here's a website that you might find instructive: http://math.about.com/library/weekly/aa062502a.htm

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 1, 2013 at 10:09am

You're now trying to go back and totally change the parameters because you presented misleading information.  Nobody is debating the fact that units can vary in size.  All I did was point out that the royalty equation was based on numbers that did not make any sense.  So if you want to keep flat out lying to people that's fine, just own it.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 1, 2013 at 10:31am

You can believe whatever you want.  Your evidence is absolutely nonexistent and you'd be hard pressed to find any instance where I discouraged people about royalty potential or encouraged them to sell anything.  At the end of the day you're just another local know-it-all who thinks he's better than everyone else.  That attitude will eventually cost you something, be it knowledge, friendship or opportunity. 

Permalink Reply by Joseph-Ohio on March 1, 2013 at 7:19am

Addressing Marcus:

In Ohio, the current setback rule is 500' from property lines (without incorporating your neighbor into the drill unit) as I understand it.

In Ohio there is legislation in Committee currently discussing changing the setback rule to 750 feet from property lines which is something I personally think as landowner punitive as it would enhance dillution of royalty payments.

There are 43,560 sq. ft. in 1 acre.

99 acres = 4,312,440 sq. ft.

To me it means under current rules that a lateral 6,500 feet long could affect several landowners as property lines would  have to be closer than 500' to the lateral, the vertical origin of the bore hole, and the terminus of the lateral.

Hypothetically if a property were 7,500 feet in length:  If the vertical bore hole was 500' from a back property line and then extended 6500' perpendicular to the back property line and terminated 500' from a front property line - the property would have to be 574.992 feet in width (4,312,440 sq. ft. / 7,500 lineal feet in length = 574.992 lineal feet in width) which would then in turn include the adjacent properties sharing each 7,500' long property line in the drilling unit - and then proportionate to the placement of the well and lateral between the property lines delineating the 7500' length of the property.

The math is simple enough but, then again maybe not so simple considering property line variations etc.

And, I see your point.

Permalink Reply by The Hiker on March 1, 2013 at 12:45pm

Why don't you kids get out of the sandbox or take it off line?  I don't enjoy reading the insulting public conversation and I'm sure others don't either.   Grow up.  Start another discussion if you can't maintain your cool on this one. 

Permalink Reply by The Hiker on March 1, 2013 at 1:54pm

Joseph-Ohio:   In answer to your question:   All the unit diagrams I've seen show the laterals and unit boundries running NW-SE at 30 - 31 degrees NNW from true north (NE Noble and SW Belmont....SW Monroe is a bit different....it depends on the direction of the natural fractures in the area).  Since most property lines run E/W, N/S and most peoples acreage holding is ~ 100 acres or less, the units usually cross several landowners at an angle, and no one normally gets all their acreage into the unit, especially if it's a single lateral.   One unit I saw shows a large landowner with only 0.6 acre within the boundry.  The setback requirement only applies to the unit boundry, not any one landowners property boundry.  Whatever acreage is contained within the "angled" unit becomes the basis of each landowners share of the pie.   I don't have Excel on my computer, so have not followed the spreadsheet discussions, but a unit width of 1050' and a lateral length of 6500' with radiused ends (Consol does this) will give you 176.6 acres, a little more for a rectangular unit.   Antero plots a bit more width that this; most of their single units have a 550' setback.

I spoke with one of the guys at ODNR about a month or so ago, and he said any operator can apply for a variance from the 1000' between-lateral spacing.  All that had applied at that time (Gulfport, Chesapeake and Hess) had been granted permission, so it's not only Gulfport that will be doing some "science".   Since the well diagrams are public, it will be easy to follow what's going on (at least from a design standpoint).   The change in spacing (if any) after the tests finish will obviously indicate the results, and if they publish IP data, that's just more public information to enjoy and speculate about.

 

Permalink Reply by Joseph-Ohio on March 1, 2013 at 2:31pm

Guess I had it remembered wrong by about 90 degrees.

In regards to directional orientation of the laterals that comprise a drill unit, I only  remembered NE-SW but you read Unit Diagrams as NW-SE.

It's easier for me to trust what you're reading rather than my memory here !

So, on the strength of applying only that much science, it appears to me that it would take a couple of laterals traversing our ground to drain the resources within (if the laterals were 1000' apart).  Saying that because our tract is about 52 acres in area / about 1050' wide (N-S) x about 2150' long (E-W).  That also assumes that laterals 1000' apart would effectively drain the resource and wouldn't have to be nearer each other to do the job.

Thanks for all the good information Mr. Hiker, we appreciate it.

 

Permalink Reply by Area Man on March 1, 2013 at 3:45pm

I can chime in on well spacing, but its a bit of a mess - there's a lot that goes in to it.  When you frac a well it changes the local stress regime so when you frac a well very nearby, it won't necessarily have the same results.  Additionally, as you start to infill (1000' -> 750' -> 500' etc) the wells begin to compete and each well brought online will generally make all the producing wells worse.  So, its all about economics - sometimes you can live with worse wells as you're still making money and you're extracting more of the resource.  However, if the wells are expensive and the commodity cheap, you may stick with larger spacing to get the most out of each well - there's always the ability to come back at a later date and infill.

Cheers!

-AreaMan

Permalink Reply by Area Man on March 1, 2013 at 3:46pm

"Why don't you kids get out of the sandbox or take it off line?  I don't enjoy reading the insulting public conversation and I'm sure others don't either.   Grow up.  Start another discussion if you can't maintain your cool on this one."

Quoted for truth.

Too many threads on this board go downhill quickly.

Permalink Reply by The Hiker on March 4, 2013 at 5:45am

Why is everyone so focused on EUR...and what quadratic function the decay curve fits, etc...?   I'm interested in the first 10 years of output after my well gets drilled.   It's unfortunate the decay curve is so steep, but since I won't be here to appreciate the Ultimate Recovery.......  

Permalink Reply by Jack Straw on March 4, 2013 at 6:15am

RE: "It's unfortunate the decay curve is so steep"

Actually, the steep decline curve is a "two-edged sword".

Having such a large portion of ultimate recovery occurring so soon after drilling allows the Operators to quickly recovery their costs. The time value of money comes into play. The rapid return on capital is a plus; were there not so much of the production early/upfront the economics would not support drilling.

Also, the Royalty holder gets a major portion of their royalties early in the life of the well(s).

This allows them to enjoy their windfall earlier in their lives.

 

The bad news is that the Operators are placed on a treadmill, whereas they need to continue to drill at an ever increasing rate in order to maintain production volumes.

For the Royalty holder, the initial big checks results in big tax bills (at high tax rates).

For the Royalty holder, there is a need to exercise fiscal restraint .... as the windfall will not continue at the rate of those early checks. The apparent new found wealth can go to their heads.

 

The steep decline curve is what it is. The key is to appreciate its nature and make decisions cognizant of the realities associated with the curve.

Look to the lessons we can learn from the squirrel ... store up those acorns for the coming Winter.

 

All IMHO,

                JS

Permalink Reply by Bluflame on March 4, 2013 at 8:18am

Hello Jack,

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

   Yet re-fracking doesn't seem to be standard practice. Is there more to the story? What is your opinion?

BluFlame

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