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I've suspected much of this since I first heard about very high decline rates in many shale gas wells a couple years back. It never made sense that this very expensive horizontal drilling with multiple fracing was somehow very profitable at low gas prices. The very high production in the first year or two was a scammers dream.

Sadly the very optimistic projections have driven decisions on such things as nuclear power plant building (or lack thereof), a massive investment in combined cycle plants fired by natural gas, the price of companies with conventional low cost shallow production and a host of other ideas that may have to be rethought.

This cannot help be great news for the low cost conventional producers that I prefer.

Ironically horizontal drilling with multistage fracing may turn out to have a better home with the light oil guys where re-doing old fields could be very profitable.


<<<link stolen from tyska (Dan) on the Canada Gen board>>>

Here's Why The Marcellus Shale Discovery Will Be A Disappointment
The Oil Drum | Oct. 30, 2010, 5:05 AM |

Shale gas plays in the United States are commercial failures and shareholders in public exploration and production (E&P) companies are the losers. This conclusion falls out of a detailed evaluation of shale-dominated company financial statements and individual well decline curve analyses. Operators have maintained the illusion of success through production and reserve growth subsidized by debt with a corresponding destruction of shareholder equity. Many believe that the high initial rates and cumulative production of shale plays prove their success.

What they miss is that production decline rates are so high that, without continuous drilling, overall production would plummet. There is no doubt that the shale gas resource is very large. The concern is that much of it is non-commercial even at price levels that are considerably higher than they are today.


One Hundred Years of Natural Gas?

Many people now believe that the United States has an abundant natural gas supply that will last for 100 years. While it is true that the resource base is large and that approximately one-third is from shale gas, it is not 100 years of supply at current consumption levels. The Potential Gas Committee’s (PGC) June 2009 report estimated that the U.S. has 1,836 Tcf of technically recoverable gas resources. Technically recoverable resources are different than commercially viable reserves. Nonetheless, a more careful reading of the PGC report reveals that the probable estimate is 441 Tcf and the shale gas component is about 150 Tcf (Figure 5). That resource represents a lot of gas but, at 23 Tcf of annual consumption, it is about seven years of supply, assuming that this was the only gas available. Based on production to date, it is likely that the commercial component of this resource is between 50 and 75 Tcf assuming a $7.00/Mcf gas price.


The Traveling Circus

Shale play promoters constantly try to divert attention and analysis from current plays to newer plays. Newer plays have less data to analyze and, therefore, reserve claims are more difficult to question.
Because the Barnett and Fayetteville shale plays have under-performed expectations, we were invited a few years later to consider the future potential of the Haynesville Shale play. Now that the Haynesville looks disappointing, we are asked to consider the Marcellus Shale play. Since the State of Pennsylvania does not publish monthly production data for analysts to evaluate, no one can dispute or confirm the claims made by operators. With the shift to liquids-rich plays like the Eagle Ford Shale, we are again asked to trust the same promoters that sold us under-performing plays in the past that this time it will be different.

We should call a time out at this point and ask for a reality check. This will never happen because the capital keeps flowing and the promoters continue drilling and leasing. There appear to be a host of foreign investment companies that may provide capital for the shale plays now that operator debt has reached extreme levels, and most available assets have been sold at considerable damage to shareholders.


U.S. shale plays have been over-sold and are unlikely to deliver the results that investors now expect. In fact, shareholders have already lost most of their investment. The shale gas resource is huge but the commercial portion is likely to be much smaller than what has been claimed or hoped for. At higher gas prices, more of the resource makes economic sense but that depends for the near term on production discipline that seems to be absent in the U.S. E&P companies. It also assumes that attendant service costs do not escalate at similar multiples to gas prices.
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