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  • Natural Gas: A Meltdown Behind The Revival [View article]
    The swelling production story is the sum of several opposing forces, so it isn't so simple to determine who the marginal/swing producer is. Associated gas production from oil wells is contributing meaningful new volumes now. Trying to quantify that, as well as the other headline issues, is tough: uncompleted well inventories, efficiency improvements, downstream transportation and processing constraints, unknown decline curves, faster development of new basins, and the looming prospect of LNG export. We also have a shifting production geography, and that has impaired supply in the severe weather on a scale we've not seen, nor have we yet recovered from.

    We should be cautious about constructing narratives that probe the intentions and motives of E&Ps. To say that rig deployment is triggered by a price signal, with a lag for approval and mobilization, is one explanation. But the prolific Marcellus/Utica has a pipeline problem so big and a backlog so long, that rigs just can't keep stacking up cased holes. There are more rigs working in Ohio+West VA now than in Pennsylvania.

    I think the forward curve is telling the (sad, but no so very sad) truth.
    Feb 3, 2014. 09:27 PM | Likes Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    Not correct. Why point us to a guy's spreadsheet?
    Look at the EIA Monthly Natural Gas Report.

    http://1.usa.gov/x7ctuO

    Definitely flat(ish) for the last year and a half, but nevertheless above 2012 monthly since Jan and up year-on-year. I think it will grow, and more steeply, in 2014.
    Sep 26, 2013. 04:37 AM | Likes Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    Here's a recent (aug) Platt's article with Barclays estimate of the PA Marcellus backlog of 1,500:

    http://bit.ly/16aJHE4

    Here's another Penn State Marcellus Center estimate of 2,000

    http://bit.ly/18qY2Ny

    There are many recent estimates of Utica backlog in the 200-400 well range I believe
    Sep 26, 2013. 04:18 AM | 1 Like Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    I have not seen the actual Wells Fargo research, though UPL credits them. I don't know if they could be selectively choosing peers from the WF report and still attribute it? Either way some obvious peers are strangely absent. And some very oily names are there. Misleading at a minimum.

    Marginal cost of producing NG is nowhere near $2?
    Multiple aspects to this. I think two big ones are:
    1. It is viewed increasingly as a byproduct as the resource gets wetter, and those economics are positive in several areas with high BTU gas.
    2. So much acreage is HBP and de-risked now, that full-cycle costs are probably not relevant to the drilling decisions of many producers anymore. The half cycle economics are positive for enough producers that bits will turn at sub $4.
    Sep 26, 2013. 03:09 AM | 1 Like Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    Thanks for the reply. I regret not clarifying the EUR vs MCF/day metric. The punch line I think is that much more gas is being developed than is being produced in the Northeast. And this means production will rise. I think production will not just rise, but astonish.

    The deep assets like we see in BC Alberta might not have the present value that is currently ascribed to them if if if they will not be economic (and potentially written down) for 3+ years. What if the upper Devonian is the size of the Marcellus? The Utica looks smaller and oilier but still an infant and the best well so far is 54 MMCFE a day IP? Excuse me? This kind of thing could keep remote assets on the back burner for a while, and I think we were pretty much thinking like this in 2010 when the Haynesville was the darling.
    Sep 26, 2013. 02:55 AM | Likes Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    Worthy comments.
    1. production and development are not the same, to be sure. and worth clarifying. Replacing a produced BCF with a developed BCF does not necessarily mean that output will be steady. Developing gas at the same rate we are producing it only means we would approach that level of production over time if development remained steady.

    2. No question that we are in decline in many basins. I don't claim otherwise. Haynesville is a particular example of very large production losses. It's not a very economic basin, with mostly young wells. But I think you have to show that the declining basins outweigh the growing ones in order for the argument to be compelling. I am saying that the northeast will overwhelm everything because the math seems to indicate it.

    3. As to early decline rates from shale, all your stats are accurate to my knowledge. I think they are factored in to future production growth.

    4. Here is a question for you. The 100+ rigs drilling in Marcellus/Utica, are they really HBP focused? It's a factor certainly, but the drillers are showing very economic IRR's in both wet and dry areas. When HBP is mission accomplished, will rigs be stacked at $4 gas? If you say yes, isn't that saying that the returns aren't as advertised? If you say no, then what is your math on avg EUR and drill time?

    Anyway, your comments are appreciated and I think these are really the core issues. I only reluctantly came to my conclusions after expecting a price revival and production decline for a long while. But seeing the astonishing results out of the NE that seem to get better every quarter, along with falling drill times, forced me to face the math. So I think the debate has to somehow address the fact that 16-20 BCF wells are not the exception in large swaths of PA acreage. Wet areas have less but still can be 5+. So how can we drill 150+ wells per month and not see regional production rise relentlessly?
    Sep 26, 2013. 02:36 AM | 5 Likes Like |Link to Comment
  • Natural Gas And Dry Gas Producers Are Years From A Recovery [View article]
    You are right about Cheniere's published timetable. Most analysts are banking on a delay. It is worth modelling a range of outcomes. First train is about 1 BCFD I believe.

    Your statement about Mexican exports growing to 7 BCFD by end of 2014 is not accurate. It is important to correct that. Pipeline capacity is expected to grow, but export volumes will not grow anywhere near that much that quickly. You link also needs to be fixed I think.
    Aug 20, 2013. 02:12 PM | Likes Like |Link to Comment
  • Natural Gas And Dry Gas Producers Are Years From A Recovery [View article]
    Your statement that gas is in terminal decline in Texas, for example, is incorrect by the most recent data.

    And Bill Powers says:
    **********************...
    I review in detail how total U.S. production is poised to fall in 2013 and for several more years. Production growth from the Marcellus and elsewhere will not be enough to keep America's natural gas production base stable.
    **********************...

    I do not know his methodology, I just know that the above statement is false, for starters. To say we are running out of resources is a sensational headline. Gas production is probably higher in this exact moment than it has ever been in history. Gas prices are below the cost of production for most producers. I would politely say that Mr. Powers has an out-of-consensus view.
    Aug 20, 2013. 02:12 PM | 5 Likes Like |Link to Comment
  • Natural Gas And Dry Gas Producers Are Years From A Recovery [View article]
    Sorry, a frac ban was just a hypothetical example of the fact that something special needs to happen to lift gas above coal competion. Of course a national frac ban is highly improbable, and would probably add a 1 in front of the $4.50.

    You're right, many E&P's do say they need $5 to drill dry gas. I am basically saying we don't need those E&P's.

    I'm just claiming that the data continues to indicate very strong production, long after the expected cliff, and 388 rigs apparently don't need $5 to keep drilling. Those are the best rigs, in the best plays. Wet or dry, it is working for them.
    Aug 20, 2013. 02:12 PM | 1 Like Like |Link to Comment
  • Natural Gas And Dry Gas Producers Are Years From A Recovery [View article]
    Renewables are going to have at least a couple more good years. The wind tax credits were extended again this year. And solar, though small, will grow meaningfully because those projects have a long lead time and we can see the pipeline. California mostly.

    We really need load growth. Gas does marry well with wind, but it only goes so far. Solar is small, but punches above its weight because it is on peak and predictable. And it is getting cheaper faster than other power sources.
    Aug 20, 2013. 02:12 PM | 1 Like Like |Link to Comment
  • Natural Gas And Dry Gas Producers Are Years From A Recovery [View article]
    Fair point. I am primarily short volatility. I've sold puts and calls around the coal-to-gas switching range. At the moment, I see that range around $3 < >$4.50, but it can change as other factors have influence, primarily weather in the short term.
    Aug 20, 2013. 10:18 AM | 1 Like Like |Link to Comment
  • The Key To A Natural Gas Recovery? The End Of Joint Venture Boom [View article]
    TOT
    Many factors will prevent gas from breaching $3, but supply and demand are being kept in balance now because gas is stealing power generation market share from coal. That opportunity decreases as gas moves up, and goes away around $4.50.

    I think rig counts matter, but differently now. I just wrote about that on my blog. Baker Hughes is now publishing well count along with rig count, and it provides a glimpse into rig efficiency. Producers are only short pipe in the Northeast, and short cryo capacity there and in Eagle Ford, so those are the primary places where cased holes will backlog.

    But keep in mind that basis has shifted more than HH Futures. Premium markets are now discount markets, and gas is cheaper in most places than HH would suggest. That helps it beat coal.
    Aug 19, 2013. 01:07 PM | Likes Like |Link to Comment
  • The Key To A Natural Gas Recovery? The End Of Joint Venture Boom [View article]
    To make the case for a gas price recovery, I too would look to the CEO of Ultra. Ultra may be a low cost producer, but they make dry gas. In truth, they are much further to the right on the graph, behind all the no cost producers. A synonym for liquids drillers.

    The thesis of the article, that capital for drilling is drying up due to the JV slump, leading to imminent production declines, is not going to prove out. It is partly wrong, and partly incomplete. Much of that JV money is still unspent but committed. Other JVs for wet gas are still being done, and wet gas contains a lot of gas. Furthermore, producers can't seem to stop improving and innovating, despite investor distaste for gas reserves. Astonishing gains in productivity and reserves-per-well are overwhelming the industry's attempts to exercise drilling discipline.

    Lastly, the bolus capital from those JV actually found and developed much more gas that we've seen come to market. They built a backlog of uncompleted wells that are in the queue. Those will indeed be worked off eventually, but it still implies that 1,000 gas rigs were never required to raise production so much. We are probably pretty close to the rig count we need right now.
    Aug 18, 2013. 09:25 PM | 2 Likes Like |Link to Comment
  • Why Natural Gas Could Make A Run Towards $5 This Spring [View article]
    Another withdrawal is coming next week.

    Coal is resurging, but as Bob Dylan said, "You can always come back, but you can't come back all the way".
    Too much coal power is closing up shop.

    Last year gas needed to beat out coal because we had an inventory problem. This year we don't have that problem.
    Apr 8, 2013. 05:26 AM | 1 Like Like |Link to Comment
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