Depletion Rate

A topic I don't see addressed very often is the striking production decline rates of shale wells. A year ago, companies were finding Marcellus horizontal wells deplete about 75% the first year and 90% within 5 years. Link:

 

http://www.thefriendsvillegroup.org/declinecurve_range.pdf

 

Although the industry business model is to keep moving on and drilling (thus the beauty of the huge Marcellus), the impact of this decline is huge on individual landowners and their finite wells. A couple royalty calculators have recently been pulled off of the internet due to their failure to accurately project this decline. We are all focusing on the initial rate of production reports (average of 5 mmcfe, high wells of 13-14 mmcfe), and not the reality that ongoing royalties will be 10% of these initial calculations... Don't buy your yacht on credit.

 

Has anyone heard or read any current reports or experience on decline rates?

 

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Permalink Reply by Dave Stewart on October 22, 2010 at 7:47am
This lengthy article does a decent job of highlighting problems with decline curves along with some other issues:
http://www.rigzone.com/news/article.asp?a_id=99414
It makes quite a few observations that merit some thought.

It does appear that there is little public data that can be used to put together decline curves. I would agree that the best bet is to work with the conservative assumptions that are available. Drilling companies no doubt have good data on areas in which they are drilling. However, competition prevents them from being too specific.

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