<DrumBeat: November 9, 2006The Oil DrumDrumBeat: November 10, 2006>

179 comments on The North American Red Queen: Our Natural Gas Treadmill

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mw on November 9, 2006 - 1:33pm Permalink | Subthread | Parent | Comments top
Just a reminder here in case not covered -- EnCana, one of the largest NG producers, this week announced they were cutting back their "production-growth targets" by half; moving from a long-standing 10% annual growth rate to 5% a year.

The announcement focussed on drilling in particular.

Cited reason - "Inefficiency has crept into the business as a result of having so much activity ramp up in such a short period of time."

But also:

EnCana has identified 43,000 potential drilling targets on its properties. If it sought to grow at 10 percent per year it would need to drill 6,000 wells a year, running through its inventory in seven years.

The lower growth rate would reduce annual drilling to 4,000 wells a year, a level EnCana said would mean it could operate on its existing lands for a decade before needing to add new prospects.

Perhaps they'd rather hang on to some of those targets and deliver more of the stuff later, in a declining resource envrionment.

Or maybe they are just too busy building their new billion dollar office tower in Calgary ;-O

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oilmanbob on November 9, 2006 - 2:07pm Permalink | Subthread | Parent | Comments top
Or, maybe they can't raise the money. Oil operators are like real estate developers in that they drill when they have financing, not when its most profitable. EnCana has been hot and heavy in unconventional gas, and I have guessed they have some big hedge funds backing them. Could be their results combined with low prices are cutting in to their drilling budgets. How many of their "locations" are in the Woodford-Barnett shale? How many are in doubtfull areas like their Culberson-Hudspeth county lease blocks, or their blocks in the western part of the Newark Barnett Shale field?
  How has their projected production matched up with their results? These guys are better promoters than I am, but investors generally get discouraged when the production and prices are not up to snuff.
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mjacobspaj on November 9, 2006 - 3:11pm Permalink | Subthread | Parent | Comments top
Aren't natural gas prices down significantly in the past year?

Could this have anything to do with slowing of drilling activity?

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oilmanbob on November 9, 2006 - 3:51pm Permalink | Subthread | Parent | Comments top
Gas prices are roughly half of what they were a year ago, when they rose to $14/mcf post-Katrina and post Enron/Dynegy/El Paso manipulation. But they are still 300% of the year 2000 gas prices.
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mw on November 10, 2006 - 2:59pm Permalink | Subthread | Parent | Comments top
EnCana doesn't need hedge fund money to support operations; few, if any, of the big ones do. You are talking about a company that is literally spewing $$ and heavy cash flow.

They are one of the largest land holders (last I checked, which was about a year ago, the largest land holders in oil sands) plus made some smart moves in unconventional gas in years gone by. They were considering converting to an income trust this year (now put on hold by the Canadian govt decisions announced Oct 31st).

Seems to support "we've got the resource, why race to pump it out when costs are high, when we can wait, and still produce huge profits".

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