<DrumBeat: December 4, 2007The Oil DrumHow Big is your Bicycle?>

60 comments on Natural Gas and Complacency

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memmel on December 4, 2007 - 2:06am Permalink | Subthread | Comments top

Its interesting how this < 5 year well lifetime has a big effect on profitability. At least for oil the economics seem to become marginal under 10 years. I think this may be a important limit. And one thats been overlooked. Thanks for the article.

To give a oil example

Assume you drill a horizontal well and it produces 1000 barrels assume a price of 100 dollars a barrel
then in 1 year you get a return of over 3 million dollars
So its probably covered the cost of the well in one year and you make money.

But lets say it produces 100 barrels a day.
Then it takes say ten years to recover your costs if they are 3 million. If its say 1 million and the well lasts 5 years then your making a little bit of money.

You can see how well lifetimes less then 5 years really changes the dynamics. In general your only making money the last few years. If cost increase say 50% your no longer making money. It seems to me that a lot of this production is fairly marginal.

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tirwin on December 4, 2007 - 3:51am Permalink | Subthread | Parent | Comments top

Are the producers counting on future price increases to give them profits? Seems more like poker than investment.

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writerman on December 4, 2007 - 3:59am Permalink | Subthread | Parent | Comments top

"King Coal", the legend, is preparing to return, and reclaim his throne, after his long, un-fashionable, and "un-profitable", exile. Whether he's really cleaned-up his act, or not, is a moot point.

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FMagyar on December 4, 2007 - 8:01am Permalink | Subthread | Parent | Comments top

King coal is still a finite resource and there is an increasing demand (read growing demand)for it. Sound familiar?
So the King is quite likely just as naked as Emperor oil. I'm sure others on this site can fill in the technical details with the nice graphical analysis. Peak Coal anyone?

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FMagyar on December 4, 2007 - 8:03am Permalink | Subthread | Parent | Comments top

Ironic that this was the quote the appeared just as I hit the post button for my previous comment:

“I'd put my money on solar energy… I hope we don't have to wait til oil and coal run out before we tackle that.”
—Thomas Edison, in conversation with Henry Ford and Harvey Firestone, March 1931

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Odysseus on December 4, 2007 - 11:55am Permalink | Subthread | Parent | Comments top

It's easy to over analyze whether drilling these shales is cost effective. The two facts I come back to are:
1) Gas companies only make money when they punch holes in the ground that produce. Meaning you have to drill holes! You can't make a living off of analysis alone. It's much easier to blog, arm-chair quarterback, or be an analyst.
2) A producing well (at almost any level) is a true fixed asset that I would much rather have than a fist-full of dollars when hyperinflation really takes hold. We simply will ALWAYS need more gas here in North America. I think the wise companies see this coming and are drilling like mad now while there is capital available.

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mcgowanmc on December 4, 2007 - 12:14pm Permalink | Subthread | Parent | Comments top

I have a stake in the Fayetteville Shale Play.

First. The roads are taking a beating.

Go to your County Judge/Quorum Court to find out which roads
are about to be used.

http://www.entrepreneur.com/tradejournals/article/168629997.html

"“The Department of Finance and Administration is studying very thoroughly how this industry and this product is taxed around the region, in other states,” DeCample said.

The relationship between the state and gas companies is not broken down, DeCample indicated.

“The governor has not ordered restrictions on gas industry trucks,” DeCample said. “The highway department controls that. The governor does feel strongly about sustaining that balance between insuring those who use the roads and who potentially damage the roads pay their fair share to maintain the roads, but at the same time preserving the economic development for that region, and the Fayetteville Shale has been a big source of economic development for that region.”

Fayetteville Shale about numbers..."

The roads better stay in good shape.

And the water better be taken care of as well.

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Aniya on December 5, 2007 - 2:01am Permalink | Subthread | Parent | Comments top

Hi mcg,

Hmnn...

re: "The roads better stay in good shape.

And the water better be taken care of as well."

Any idea of how this can happen? (Because it looks like the default position is for worse roads and, what's up w. water?)

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