happycajun

Why Are Natural Gas Producers Expanding Production So Aggressively?

"John Galt" - sorry, I missed your irony initially! Where there is misconduct, by golly letstake the miscreants to task, conspiracy theorists - please stick to the authenticity of the moon landings, JFK, ect.

Madrejesica - oil & gas property rights are governed by state law, hence each state has its own set - but there is a significant similarilty in how the operating companies and landowners have approached the legal issues. Regarding the shut-in provisions, the typical lease provides for a "shut-in royalt" that holds the lease when a lease is shut-in awaiting facilities. Following is an example:

"should Lessee be unable to operate said well because of lack of market or marketing facilities or governmental restrictions, then Lessee's rights may be maintained beyond or after the primary term without production of minerals or further drilling operations by paying Lessor as royalty a sum equal to one dollar (1.00) per acre of land covered hereby per year, the first payment being due . . ."

There are a variety of general lease forms that have been used over time, and you must read each one to make sure what it says! If you have a significant sized tract (forty acres or more) you would be well advised to have an oil & gas lawyer take a look at things for you before you sign. My VERY generalized explanation above is just that - generalized. Whole legal treatises on the subject of Oil & Gas law such as "Williams and Meyers" (which my old friend Pat Martin edits) are written on the subject, so this is an over-simplification at best!

Why Are Natural Gas Producers Expanding Production So Aggressively?

Mr Galt, I'll tell you were they get these people.

The majors recruit the finest engineering, geology and mba programs in the world, looking for the best potential. I have known many with undergrad degrees from US Naval Academy, US Military Academy, Texas, Texas A&M, Rice, Oklahoma, MIT, Harvard, Michigan, Penn, Duke, Purdue - just to name a few who I know who made it to the top ranks of E&P businesses. They then put them in the trenches - ALWAYS analyzing the economics of any investment decision. ALWAYS. The independants tend to hire from the majors - because the majors are better able to afford to train and develop the raw recruit. The young professional is taught about legal and regulatory aspects of the business - and HEAVILY INDOCTRINATED to NOT do anything wrong or unethical. I know some armchair quarterbacks will jear this assertion, but the majors all have a culture of being ethical, honest businesses - WAY more so than what I have seen from the wallstreet financial crowd.

There some bad apples, as in any business, but after the last great oil boom/bust, and all of the scrutiny focused on the industry over the nearly forty years I've been around it - the culture is shareholder focused, while operating legally and ethically. Anyone have some specific factual charges - take them to the SEC.

Why Are Natural Gas Producers Expanding Production So Aggressively?

First, a technical correction - you don't "pump" natural gas (or any vapor phase material), you compress it. Gas wells flow or they don't flow - you don't pump them. If the pipeline pressure that you have to overcome to get the gas into the pipeline is higher than the wellhead pressure, then you add compression at the wellhead, downstream from the separators.

Second - the "why" wells are being drilled with prices down is more complex than you characterize. One must look at oil & gas law and how mineral rights are acquired to understand why an oil or gas lease is a "use it or lose it" proposition. When a landowner leases his/her minerals, it is by way of an agreement in written form that stipulates that the lessee has a limited amount of time to drill a well, or the leasehold rights revert back to the land owner. In the Haynesville, for example, it common for leases to provide that the lessee must drill a well in two years, or the lease goes away. There is usually an option to "renew" the lease for an amount of money generally equal to the original lease payment or "bonus" that was the consideration for the lease initially. The lease bonus in the Haynesville has been in the $5,000 to $10,000 per acre range generally. If gas and condensate are produced, then the lessor gets a percentage of the gross production at the wellhead, typically 25% of the volume - which the producer generally markets for the owner, who then gets the $$ that his 1/4 of the gas is sold for.

Now, to put this in an economic context. The basic "unit" being formed in the shales is the section - or a 640 acre nominally square area. This unit is developed by a single horizontal well that is spudded (the surface penetration of the drill bit) near the center of one side of the square, and which goes down vertically to the shale formation, then "kicks" horizontal and runs about a mile - this is the section of the well that is "completed" - where the gas flows from the rock into the tubing, then to the surface.

The lease bonuses for 640 acres is a sunk cost of about $3 - 6 million. A well costs a little more than that. If you don't drill, you lose the lease, or have to pony up another $3-6MM to hold the lease - which you will still lose if you don't drill - all you are buying is time. Having shelled out the $$$ for a lease, and or for a well - it is simple matter of cash flow that you have to generate revenue to produce some return on the investment. The lease also has shut in provisions, which require that a lease be produced once a well is drilled, or it reverts to the land owner - if a lease is shut in more than thirty days - you can lose the lease.

The above is much simplified - but it shows that the economics and risks are more complex than you characterize. This is why the upstream E&P business is best analogized as a game of stud poker - you have to ante up at each stage of the game, and you don't know if you have won or lost until the last card is dealt.

Your Oil Stocks Aren't Coming Back

Mr. Brown, you show a profound ignorance of the business. You cannot compare a pure play upstream company to an integrated to a drilling company in the first place - at least not on fundamentals. And fundamentals is where you must start. Tech companies of the 90's all set out to own 90% of the same unknown pie - there was no market for what they all sold to investors. Oil & Gas - has been around & will be for some time to come. Some of us who remember the crash of '85 understand. Mah' as sallamah y'all.

Natural Gas & Wind Power - The Pickens Plan

Gasoline heating value is around 125,000btu/gal. 20gallon tank holds 2,500,000btu's. NG is about 1000btu/ft3 - using 80cuft scuba tanks @ 3000psi require 32 tanks to hold the same btu equiv. Weight of the tanks is about 1,120 lbs. NG takes a lot of energy to compress - cost $$$ tanks - about $5,000 extra . Just a thumbnail analysis - but shows that NG has some of the same problems as electric - distribution, "fill up" time - (ever had a standard 80 filled? how about 32 of them). In otherwords - we would be using them if economical. Differentials in price/btu tend to be transient - with eventual equilibrium at some ratio - Regarding PaulK's 5m cars - he cites no authority firstly. But more importantly - ever notice how many mopeds, vespas and such you see in europe & far east? Not so here - the US has massively different transport issues that vary by location. Like said above - CNG may play a role - but in more of a niche. I think things like GTL probably make more sense (gas to liquids) for the US market - llikely more efficient at the bottom line at some future gasoline-gas cost ratio. I just think that CNG has inherent limitations been involved in this stuff before the first "energy crisis."

Natural Gas & Wind Power - The Pickens Plan

If the technology to use CNG is so simple, and the economics so compelling, and being that NG has been a nuisance by-product of oil production from day one (I still have photos of the huge flares in Saudi from back in the '70s).... then why hasn't some Einstein done hooked us up in bulk?! Don't blow smoke about it being a great conspiracy - Don't BS about it being less hazardous than alternatives. If it is cheap, safe, easy and worth doing - why hasn't it caught on for the last 80 years?

Natural Gas & Wind Power - The Pickens Plan

What you are seeing in Russia is LPG fueled vehicles - VERY OLD tech - and long used as farm and fleet fuel in the US. It is LIQUID propane or butane. As a liquid, it stores much more energy at relatively low pressure in a normal sized container. CNG which Scott mentions is a completely different delivery system, while the combustion end is similar. NG is commonly used in stationary pump or generator installations with hard-piped NG. BUT to store enough NG in a portable container on board a vehicle is another matter. It requires very high pressures - think SCUBA tank - which are very heavy in sizes big enough to hold reasonable amount of fuel. Gas follows the "ideal gas law" or PV=ZnRT which roughly means to store as much NG BTU's in a given volume as propane requires compressing the stuff to something like 700 atmospheres - or about 10,000 psi. Longish time to fill up, more complicated procedure than gasoline, etc..... and importantly - the infrastructure to deliver same is not in place. That is why CNG would be best suited to fleet usage (busses, taxis, UPS trucks, etc.....)

If Russian filling stations were delivering 10,000psi NG to the general public - you would see occassional "light ups" at the stations....

Natural Gas & Wind Power - The Pickens Plan

and now the wind generation is environmentally suspect - first there are those butt-ugly windmills all over - second - they will kill birds like crazy and now - it harms people - the low frequency beat of the spinning prop is causing problems. See: www.oregonlive.com/new... Scott is correct that the intermittency of wind means duplication of generation capacity - the very fast variation in wind velocity also makes for serious distribution problems - power surging up and down with wind gusts is problematic. Ol' Boone has skinned a number of folks over the years - his green-mail of the '80s was what made him rich - not being an "oilman" as he likes to portray. (he's also not a Texan - like Troy Aikman he is a transplant from Henrietta Oklahoma). During the oil crash of the mid to late '80s, Boone was forcing Oil companies to cut core staff and to get out of R&D, all of which has resulted in oil companies getting tuned to do one thing - find and produce oil - mostly using conventional or incrementally innovative technology. Heck, the some of the greatest "tech" innovations came from cheap, fast computers that allowed more use of more sophisticated 3D seismic. There will be no easy, single "answer" to the energy problem - it will involve "conservation" which I think of as continued improvements in efficiency - it will involve finding and producing oil and gas - it will involve nuclear (fission and someday, fusion) - it will involve solar and wind and hydro ... there will be no simple solution.

Natural Gas: Clean Fuel with a Dirty Little Secret

Hey, you have forgotten to factor in all the demand for NG as fertilizer feedstock - anyone who has spent anytime around agriculture knows that planting the same old crops in the same old dirt consumes all the nutrients and won't grow squat. In order to meet all the ethanol targets, a whole bunch fertilizer is needed (aside from the variety being generated in Washington DC in subsidizing this thermodynamically challenged energy policy) and NG is the feedstock for much fertilizer manufacture.