More Rigs, Less Gas | Russell T. Rudy Energy LLC
“Rigzone” reports that while the number of rigs looking for natural gas has nearly doubled since last August, actual natural gas production in the lower 49 states has dropped by 1.1%. High inventories as a result of an unseasonably warm winter, steep decline curves for major gas fields, and gun shy operators have all led to what is known as the “Red Queen” phenomenon. (In Lewis Carroll’s classic “Alice Through the Looking Glass” the Red Queen tells Alice, “It takes all the running you can do to keep in the same place”).
Natural gas prices have always been heavily influenced by weather and this year is no exception. In spite of increased pipeline gas sales to Mexico, and LNG exports, gas inventories remain about 15% above normal seasonal levels. Predictably, this has exerted downward pressure on prices which are down 12% since the beginning of this year.
Actual production continues to drop however, due to the high depletion rates of existing shale gas wells. The Marcellus shale of Pennsylvania, West Virginia and Ohio is America’s most prolific gas reservoir. While new wells come on stream with very high rates, they also decline very quickly. For example, a Marcellus gas well might have an initial production rate of 10 MMCF/d (million cubic feet per day) but produce only 4.9 MMCF/d a year later. This 51% decline rate makes it difficult for operators to maintain production at current levels, even under the best of circumstances.
However, these are not the best of circumstances. Within a year of the energy price collapse of 2014, more than 100 oil and gas producers filed for bankruptcy. The lessons of over extending financially have not been lost on surviving gas explorers. Southwestern Energy, which has over 500,000 net acres in the Marcellus, plans to increase gas production by only 2% this year.
Southwestern is not unique as many operators are unwilling to borrow money in order to further accelerate drilling to restore production. Rather they are waiting for higher prices that they feel are sustainable for the long term before committing further capital.
To read the article in its entirety, please go to http://www.worldoil.com/news/2017/4/28/us-nearly-doubled-rigs-drilling-for-gas-since-august-but-production-still-lags .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
