Shale overview: U.S. gas production still on the up

Oil well and storage tanks
Oil well and storage tanks

According to the U.S. Energy Information Agency (EIA) last year’s U.S. gross natural gas production rose to a record high. In October, the output from the 48 contiguous states, which includes gas that does not reach market, reached 80.95 Bcf/d (2.3bn m³/d), up by 520mn cf/d, or 0.6pc from the previous month.

Production from Texas alone, which is the largest gas-producing state by volume, rose to 24.11 Bcf/d, an increase of 0.7pc from the previous month and up by 5pc from October 2013.

This surge is down to production from the Marcellus shale and from the oil rich-areas of south Texas’ Eagle Ford shale and the Permian basin in west Texas and southeastern New Mexico. However, while these shales lead the way in U.S. hydrocarbon prodcution, other shales are more of a mixed bag.

Falling oil prices hit Tuscaloosa Shale

The falling oil prices – hitting a five-year-low during Christmas at $55.25 – have seriously affected the companies exploring the Tuscaloosa Marine Shale, which – analysts say – need the oil prices at $80 to break even.

Companies like Goodrich Petroleum, Sanchez Energy, and Halcón Resources Group have seen their stocks plummet as oil prices fell. Goodrich fell from nearly $30 a share in June to less than $5 in December. Halcón peaked at $7.42 a share in July and fell to less than $2 in December.

Consequently, Halcón cut its drilling budget by $200 million to $750 million, but the company said it didn’t plan to spend any of that money in the Tuscaloosa. Sanchez Energy also said it was taking a step back from the Tuscaloosa. Goodrich, on the other hand, announced it would spend $150 million to $200 million to drill in 2015, with almost all of that in the Tuscaloosa.

Tuscaloosa is one of the more expensive shale plays in the U.S., so there is no surprise that it took a beating when the oil prices fell. However, analysts have not given up entirely on the formation which is still in an early stage of development. Many believe that the Tuscaloosa could still generate an economic boom that would dwarf that of the natural gas-rich Haynesville Shale in northwest Louisiana.

Utica Shale wells suffer sharp production decline

Falling production levels rather than low oil prices where on the agenda when it came to the Utica Shale. The portal Ohio.com quotes the example of the Tippens 6HS well in southeastern Ohio. The well that gushed 13,972 thousand cubic feet of natural gas per day in the first three months of 2014 saw daily production drop 41 per cent in the second quarter to 8,180 thousand cubic feet per day and another 26 percent in the third quarter to 6,015 thousand cubic feet per day.

By autumn, the Tippens well was producing less than half the natural gas that it had during its peak output and slipped from No. 1 to No. 72. It went from being a stellar Ohio well to a good-producing well.

The decline is symptomatic of shale wells which decline much more sharply and sooner than conventional wells. Bearing that in mind, Dr. Jeffrey C. Dick, a professor and chair of the department of geology and environmental sciences at Youngstown State University and an expert on Utica Shale, believes that the production decline for the formation is still “not too bad”.

By comparison some production curves – such as the Haynesville Shale, parts of the Eagle Ford Shale, the Bakken, and the Marcellus Shale in Pennsylvania – are as high as 80 per cent in the first year, so what the Utica Shale is showing is “a fairly typical curve,” he said.

 

He predicts that Utica Shale production will drop 33 per cent in the second year of a well’s life and another 22 per cent in the third year. Decline is projected at another 17 percent in the fourth year, followed by 13 percent and 11 percent in the next two years.

Despite the declining wells, Utica is still increasing its overall oil and gas production while additional wells are going online each quarter. To date, Ohio has approved 1,735 Utica wells, of which 1,277 have been drilled. A total of 707 Utica wells are producing, according to ODNR figures.

The most recent report, from third quarter 2014, for 717 wells showed total oil production of 3.013 million barrels and 132 billion cubic feet of natural gas. Both totals were significant jumps from the second quarter, when 504 wells were listed.

Haynesville shale readies to benefit from LNG exports

Production has also begun to increase in the Haynesville Shale. According to Argus Media, a decrease in oil drilling due to low prices might actually work in favour of the natural gas play. Multiple LNG facilities in Louisiana and Texas that are about to go online starting this year will increase the demand for natural gas.

Prices for natural gas out of Haynesville have begun to stabilize, especially compared to the plummeting oil prices.

Argus Media reports: “Spot prices at the Carthage hub in east Texas this year have traded at an average discount to the Henry Hub in Louisiana of 9¢/mmBtu, widening from a 6¢/mmBtu discount in 2013, amid milder weather and rising production. But gas at the Carthage hub still traded at a premium to many markets in the northeastern US during the non-winter months, meaning that Haynesville production can often fetch a higher price.”

Haynesville shale is also beginning to look particularly attractive to investors as new technologies and improved efficiencies lower the costs of drilling. A new well in Haynesville Shale can cost as low as $8 million, compared to $10 to £15 million in Tuscaloosa.

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