Carpe Diem

US gas rigs have decreased by 75% since 2008 and yet gas production has increased to record high levels

gasrigs

The amazing chart above shows how the number of active natural gas rigs in the US has fallen from an all-time high of 1,606 in September 2008 to only 407 in early March of this year, a drop of 75% according to data from Baker-Hughes. Meanwhile, EIA data though December 2012 show that US natural gas production has risen to record levels and increased by almost 17% during roughly the same period that active gas rigs dropped by 75%. In about the last five years, the amount of natural gas produced (gross withdrawals) per rig has increased by more than four times.

In a Forbes article today by David Blackmon, he explains that amazing phenomenon:

Today, there are fewer than 400 rigs in the US drilling for natural gas. Four years ago, there were over 1,600 rigs engaged in that endeavor. Yet, as the natural gas rig count has dropped by 75%, overall natural gas supplies have continued to rise.

Why? Because operators are getting better over time at maximizing recoveries from each well, and because these oil shales – the Eagle Ford, the Bakken, and those in the Permian Basin – contain a high volume of associated natural gas. So whether companies are drilling for natural gas or not, they continue to find it.

Meanwhile, in dry gas plays like the Haynesville, Barnett and the dry gas portion of the Eagle Ford, companies are basically drilling only the wells they are required to drill under their lease agreements. What this all means is that there is an incredible amount of excess drilling capacity in the system, waiting to come on line should the natural gas price firm up for any prolonged period of time.

Here’s more:

Here is the main thing to remember about the US oil and gas shale revolution: We are today at the tip of a very large iceberg.

1. Most of the known shale plays today have been discovered in just the last 6 to 7 years.

2. Prior to 2006, the Barnett Shale in North Texas was the only significant shale play being developed in the US.

3. More new shale plays are being discovered on almost a monthly basis – we are far from having discovered them all.

4. Most resource base projections are based on the oil and gas that is recoverable with current technology. In the oil and gas industry, technology advances every day, so such projections tend to become understated almost as soon as they are released.

5. Consider this: the common belief that an operator is able to recover 10-15% of the available resource with the initial completion of an Eagle Ford Shale well. As technology improves, it is likely that companies will be able to go back into many of these wells, re-stimulate them, and recover much more of that resource decades from now.

David Blackmon concludes:

Last week, New York Times columnist David Brooks wrote this: “Most important of all, the boring old oil and gas engineers have transformed the global balance of power.”

That’s where the US shale oil and natural gas revolution is leading us, and Texas is leading the way. God Bless Texas.

MP: Sorry for being repetitive, but I must ask again: peak what?

20 thoughts on “US gas rigs have decreased by 75% since 2008 and yet gas production has increased to record high levels

  1. Why? Because operators are getting better over time at maximizing recoveries from each well, and because these oil shales – the Eagle Ford, the Bakken, and those in the Permian Basin – contain a high volume of associated natural gas. So whether companies are drilling for natural gas or not, they continue to find it.

    In the old days a rig would drill a well that was short and cheap and would move on. Production would not be very high but the wells would be in operation for decades. Today you have the drilling of deeper wells that have very long laterals and facking operations that get most of the gas out in the first few months of operation. By the time the first year is over most wells are down by 75% or more and a few years later the well is no longer in production.

    The bottom line is economics. Prior to 2008 the gas producers were making an economic profit and were generating a lot of cash flows. After fracking took off the cash flow disappeared and the producers lost their shirts. Shale formations have seen an explosion in drilling that slowed down not all that long ago. While there are still a number of wells drilled but yet to be fracked and producing it looks as if the production levels will start heading down again even as natural gas prices go up. Unless they can buy some properties from companies desperate to shed assets new entrants will not be tempted too much by less than $7.50 gas. But at $5.50 or so the utilities switch back to coal and the price falls temporarily once again and wipes out what is left of the primary shale producers.

    I think that I hear the bell ringing. Thanks for reminding me to pay more attention and listen for it.

    • The wide and deep application of revolutionary technology has catapulted NG productivity. Meanwhile the rest of American industry is increasingly placing bigger and bigger bets on NG and LNG becoming dominant power sources of the future while additionally supplying critical feedstocks to a wide array of American industry are surging.

      Why? Economics, cost effectiveness, efficiency and the ability to massively benefit from rapidly evolving technological advances. It won’t be long before a new equlib. price firmly establishes NG as THE power source of the future. Progress !!!

      American industry is making a big bet…and its on natural gas.

      • It is easy to make bets when you need to hide the fact that your conventional reserves are in decline and borrowing is cheap. But you can’t make economic profits when the energy invested in the total production cycle is not much lower than the output and the regulatory compliance costs are greater than the differential, where it is positive, in most of the cases outside of the core areas.

        This means that IF there are any LNG terminals and chemical plants built they will be completed AFTER most of the core production, which makes sense because it is economic, has already taken place. That would mean that the investments would have to be written down because without the abundant and cheap production the facilities and infrastructure that serve them will not be economic.

        To see where the economy stands take a look at the copper futures. Dr Copper is telling you a very different story at this point because real prices for the metal are not going up.

          • Meanwhile, the shale oil boom continues.

            It does? The producers have admitted that they have destroyed capital as they lost their shirts. Unless the producers can figure out how to perpetually fund a charity operation you will see a rapid decline in shale gas production by the end of this year and no matter what happens with funding the Bakken oil boom is near its peak. When the write-down take place the industry will be a very different place than it is today.

          • There are corporations that have said they would be happy to convert their fleets to natural gas engines. Obama was asked to subsidize fuel stations along truck route interstates and refused and instead gave money to solar companies to go bankrupt.

            I believe natural gas could get us off foreign oil until we could institute wind through the central part of the US.

    • Cut my teeth buying oil&gas stripper wells in 70′s an still involved as interest owner operator in Oklahoma. Vangel has hit the nail right on the head. Opportunities abound still in stripper production leases not swallowed up by the big shale buyers grabbing up big blocks. Just have to be in an around the “good ole boys” who still pump their own wells, making 1-3 bopd just to have something to do.
      Eat breakfast with them listen to their stories an if they like you they sell to you at great prices. You can then go up hole increase production immediately an have true money making scenario. Owning direct equity interest rather than paying for the big packages of paperwork in limited partnerhsips etc. Fun, cost effective an nice monthly streams of income.

      I love to hear all the reserve estimates when anyone with common sense knows that just like in the 70′s no one knows how much, how long, how fast until its over. Same ole theory as the gamblin ain’t over till the dealins done.

      • I would sure like to have breakfast with you and your friends. I would learn a lot, and I am already a little long in the tooth.

  2. Even if natgas exploration and production is not feasible at current prices, natgas will be available in massive quantities for at least 100 years, and the price will be much lower per btu than oil. Natgas will be a byproduct of oil exploration too.

    The price will settle out to balance production with demand, and that price will be much lower than oil. Unless of course our brain-dead government manages to block oil and natgas.

    • Even if natgas exploration and production is not feasible at current prices, natgas will be available in massive quantities for at least 100 years, and the price will be much lower per btu than oil. Natgas will be a byproduct of oil exploration too.

      The 100 year claim is questionable. Having gas trapped in shale is one thing. Getting it out economically is an entirely different issue.

  3. One major improvement that I have read about is drilling a large number of wells from one pad. A rig move takes a couple of days, and involves lots of expense as you have to break the rig down to move it, (even then it takes special permits to do it). In addition mud pits and the like can be used for many wells. The footprint involved long term is also far lower. The Barnet shale started this when the difficulty of producing in the city of Fort Worth came about, because most homes are sold with a waiver of surface rights (or there would be no mortgage because the collateral could be torn down very easily). So they had to find places to drill, and this new technique means that one can do a lot more wells on one plot of land.

    As to the whole issue if the issue is how much is left, it very much depends on the price. Today what would be profitable at the prices (even inflation adjusted of 1970?). If you want to make the peak oil arguement into one where there is a peak production level at a given level of prices, (and technology which of course relates to price as the higher the price the more technology one can apply), then perhaps the argument is right. However to say that rising prices will destroy the economy, is wrong did the world come to an end in the 1970 when the price of gasoline went up 5x or more? There will be painful adjustments, and the market will adjust, just like the reason electricty costs about the same or less in nominal (non inflation adjusted) dollars today as the 1920s is due to far greater efficiency in generation. Edisons Pearl Street station, and indeed any reciprocating steam generating plant likley got about 5% electricity from the heat content of the coal. The best coal plants today with supercritical technology (using water above its critical temp where the liquid and vapor phases are one), is in the mid 40% range and a combined cycle plant is in the low 60% range. A large part of this is raising the combustion temp in the carnot cycle equation. which is efficency= 1- cold temp/hot temp. Thus because gas turbine gasses get hotter than steam (because of material properties and steam), it starts off from basic physics with better efficiency (not the temps are on a scale where absolute zero is zero).

    • As to the whole issue if the issue is how much is left, it very much depends on the price.

      The problem is that price also impacts your costs. In some cases there is no way to make the math work because you have to invest more in the cost of the energy of production plus other associated indirect costs than you can sell the product for. There are many people who make a good living taking old wells and improving their production levels but you will find that they tend to operate in the conventional sector because they can limit costs and control the risks much better than with shale formations where refracking requires an obscene amount of money and the decline curves make it difficult to ever get the money back.

      • Conventional small production cost control is easily accomplished by simply slowing down pumping unit to stop downhole tubing an rod s alongn with gearbox damage an repairs on pumpin units. Even one bbl day well with very little water with low maintenance allows 20K a yr net income with little or no hassles. Plenty of older producers in Oklahoma stripper country do just that gets them out of house, keeps them busy an gives them tidy nice income. Monthly income streams readily available when multiple well leases with 4-5 wells making 3-4 bbls a day each are real incentive to keep production of oil an gas coming at these prices.

        • I do not disagree with this argument. The problem is that the model, which works quite well in the conventional space, is not all that useful in the shale sector.

          • Seems to me that was the point of my agreeing with your first comments. UUUUUH agreeing with you did not mean it would be applicable to shale obvoiusly.

          • Seems to me that was the point of my agreeing with your first comments. UUUUUH agreeing with you did not mean it would be applicable to shale obvoiusly.

            If you hang around here a bit you will find them trying to apply all kinds of methods to shale as they claim that shale production will be the next big thing and salvation for the US economy. I have taken the other side of that argument by pointing out that the loose money policies that have allowed unprofitable shale production has hurt investors and the producers of economic oil from conventional sources. Yes, the price reductions for gas and oil have been generally positive for the economy and consumers over the short term but only by borrowing from the future. When those that have ignored the economics of shale production have to face reality there will be a major scramble towards proven energy sources but a panic as the naive optimists realize that the gap between we and and need to get to has been made wider by a lack of progress on viable new sources.

  4. Does anyone read about the growing public discontent with shale drilling? This alone could ultimately burst the “shale bubble” . Why would Chessapeake sell so many thousands of acres of leases to China, India and Norway? I have a problem with selling so much of our subsurface rights to China. Call me old fashioned! After reading Vangels comments I’d say investing big in Nat Gas is too risky!

  5. http://tech.slashdot.org/story/13/03/30/0312223/new-catalyst-allows-cheaper-hydrogen-production

    “Electrolysis of water to produce hydrogen is very inefficient without the use of a catalyst. Unfortunately catalysts are currently made of crystals containing rare, expensive toxic metals such as ruthenium and iridium. Two chemists from the University of Calgary have invented a process to make a catalyst using relatively non-toxic metal compounds such as iron oxide, for 1/1000 the cost of currently used catalysts. It is suggested this would make it more feasible to use electrolysis of water to create hydrogen as a method of storing energy from variable green power sources such as wind and solar.”

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