Is natural gas the next Enron?

[JohnnyMack]

http://www.nytimes.com/2011/06/26/us/26gas.html?_r=1&ref=business

From the article:
Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.

But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.

In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.

“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”

Discuss.

[Jacie]

http://www.nytimes.com/2011/06/26/us/26gas.html?_r=1&ref=business

From the article:

Discuss.

Remember the Fletcher field? Remember Saxon Oil Company?? Remember Penn Square Bank??? We already burst a "gas bubble" in the 80's. Must we go through this again?

[RUSH LIMBAUGH is my clone!]

The federal govt. should expropriate the entire oil and gas industry, so they won't have to worry about govt. spending too much. Instead of just printing money, they could turn on the spigots, and drill baby drill. They wouldn't have to tax gas, or the oil industry. They could drill in ANWR, the Channel Islands, Yosemite Falls, anywhere they want, and people wouldn't have to criticize the oil industry anymore, since it would be the people's oil.

[Jacie]

The federal govt. should expropriate the entire oil and gas industry, so they won't have to worry about govt. spending too much. Instead of just printing money, they could turn on the spigots, and drill baby drill. They wouldn't have to tax gas, or the oil industry. They could drill in ANWR, the Channel Islands, Yosemite Falls, anywhere they want, and people wouldn't have to criticize the oil industry anymore, since it wdould be the people's oil.

So tell us, how good is Nancy Pelosi in bed? I mean, you two must be sleeping with each other since you are sharing ideas . . .

[boomerinhou]

So tell us, how good is Nancy Pelosi in bed? I mean, you two must be sleeping with each other since you are sharing ideas . . .

Sleeping with Nancy Pelosi??? EUWWW!!!!

:cry:

[RUSH LIMBAUGH is my clone!]

So tell us, how good is Nancy Pelosi in bed? I mean, you two must be sleeping with each other since you are sharing ideas . . .RUT-Roh!

[batonrougesooner]

In related news...

Hugo Chavez in critical condition.

http://www.foxnews.com/world/2011/06/25/hugo-chavez-reportedly-in-critical-condition-after-surgery/

Moral of the story? Don't nationalize your energy industry or you end up in an ICU in Cuba. Not a good place to be. :)

[Chuck Bao]

I thought it was a very interesting article and worth at least the time to read it, especially since the only company referred to was Chesapeake.

I was hoping that someone here that works in the industry would give us some better insight.

[Ike]

I'm not terribly surprised. The shale gas business model seems to be one that works well when natural gas is well above $5/MCF.

[StoopTroup]

So people are gonna get fracked?

[SCOUT]

In related news...

Hugo Chavez in critical condition.

http://www.foxnews.com/world/2011/06/25/hugo-chavez-reportedly-in-critical-condition-after-surgery/

Moral of the story? Don't nationalize your energy industry or you end up in an ICU in Cuba. Not a good place to be. :)

Wait, doesn't Cuba have a national health care program. Kind of like the one...

[Memtig14]

Shale gas has been extremely profitable up to now, I don't know why that should change. It is much higher BTU gas than we get in Oklahoma.

They are already pulling a heck of a lot of it out of North Dakota and Montana. I guess only time will tell.

[Memtig14]

So people are gonna get fracked?

Good gas joke!

[OutlandTrophy]

Shale gas has been extremely profitable up to now, I don't know why that should change. It is much higher BTU gas than we get in Oklahoma.

They are already pulling a heck of a lot of it out of North Dakota and Montana. I guess only time will tell.

which shales are you talking about making higher BTUs than the gas recovered from the Woodford Shale plays in OK?

Do you think the gas recovered from Coal County Woodford is different than the gas recovered from the Blaine County Woodford? Other than Blaine having more condensate and nat gas liquids.

[REDREX]

Chesapeake is a house of cards

[87sooner]

Chesapeake is a house of cards

they are throwing around lease money like it grows on trees...
must be getting it from the chinese..

[KantoSooner]

Wasn't it Gresham's Law that talked about bad money crowding out good? Clearly there's gas there and clearly gas is a valuable commodity. Are the investments good? I don't know. And I sincerely doubt if the bobble heads on Wall Street who are pumping money into these companies have any idea whatsoever.

Go to Dartmouth. Get an Econ degree. Get a job on 'The Street'. Analyze a stack of reports (written by people who have no more experience than you do). Take a long squint at what the 'smart money' (Goldman) is doing. Gamble umpty zillion dollars on the basis of no more than rehashed newspaper articles and water cooler gossip. If you lose no more than 2-3% at worst, collect $750,000 bonus. Bitch about how hard your job is. If you lose more, then get fired and go to work for another house on the street.

Investment in the late 20th and early 21st century. Far less there than meets the eye.

[JohnnyMack]

Chesapeake is a house of cards

8nTFjVm9sTQ

[The]

Energy doesn't bubble.

[Jacie]

Chesapeake is a house of cards

We all better hope this is not true. They are the second largest domestic producer of natural gas and are currently first in # of wells drilled. In case you don't know what that means, a lot of people depend on them for A. the energy that makes the lights go on and B. a paycheck, either directly or indirectly through a service company.

[delhalew]

The price of natural gas hasn't been out of the cellar for long. It's still not high.

While they may have overestimated, they get a lot gas from those leases. I know the shale fracs just fine.

[DIB]

If Chesapeake goes, then Oklahoma is FUBAR.

[delhalew]

We all better hope this is not true. They are the second largest domestic producer of natural gas and are currently first in # of wells drilled. In case you don't know what that means, a lot of people depend on them for A. the energy that makes the lights go on and B. a paycheck, either directly or indirectly through a service company.

Chesapeake is doing fine. So is Devon.

[texaspokieokie]

Remember the Fletcher field? Remember Saxon Oil Company?? Remember Penn Square Bank??? We already burst a "gas bubble" in the 80's. Must we go through this again?

that was "oil", wasn't it ???

[OUMallen]

The same reporter for the NYT that wrote the February 27th, 2011 hit piece falsely suggesting Pennsylvania's drinking waters were poisoned with radionuclides is back at it. He has another NYT front page, sunday story attacking shale gas as a ponzi scheme and the industry as filled with Enrons. He just about calls for FBI raids.

The piece is already rocketing around facebook sites and the internet.

Reader beware. This reporter puts sensationalism ahead of fairness or truth. Pennsylvania's drinking waters are not poisoned with radionuclides, as substantial testing has verified, and the reading public should drink from this journalistic cup with great caution.

Could anyone imagine more sensationalistic narratives than Radiation, Ponzi, and Enron?

Consistent with this reporter's method, today's article uses often anonymous statements to paint a sensational narrative and leaves out or underplays critical information that is inconvenient to establishing the credibility of the dominant anti-gas narrative.

For example, the reader will not learn the following:

1. That 2010 natural gas production in the United States reached the highest levels since 1973 and neared record levels. Nor will the reader be told that the US produces more natural gas than any nation.

2. The reader will be told that natural gas prices fell by 66% due to the 2008 near depression, but the reader will not be told that US GDP in 2010 returned to 2007 size or that GDP has grown for 7 quarters.

3. The reader will not be told that actual large shale production has been the primary cause of low gas prices in 2010 and 2011, and the 2008 near depression has not been a factor in 2010 and 2011 pricing.

4. The reader will not be told that actual large shale gas production has shattered the historic pricing link between oil and gas and now oil prices have gone up while gas prices have gone down

5. The reader will not be told that, while oil prices have spiked up due to supply straining to meet demand, actual shale gas production has caused gas prices to decline.

6. The reader will be told that the alleged shale ponzi scheme could harm consumers, but the reader will not learn that actual shale gas production so far has saved a consumer heating with natural gas about $5 to $8 per thousand cubic feet or conservatively $500 per year.

7. The reader will again be warned that consumers could be hurt by the alleged ponzi scheme, but the reader will also not be told that actual shale gas production has lowered the wholesale price of electricity about 5 cents per kilowatt-hour and saved a residential electric consumer using 10,000 kilowatt-hours per year another $500 per year.

8. Though Pennsylvania and Marcellus had a starring role in the February 27th piece, the NYT reporter this time has just a couple sentences about the Marcellus. It is an interesting near exclusion.

9. All the reader is told about the Marcellus is that a Penn State professor reports well production is meeting or exceeding expectations in the Marcellus. No charts or bar graphs. No data. Nothing. Why? Very inconvenient facts for the ponzi, enron narrative is the answer.

10. The reader is not told that the well production data for the Marcellus is posted on the Pennsylvania Department of Environmental Protection. It is transparent and available to anyone.

11. The reader is told that liquids that can be produced with the natural gas can be valuable but no details. How valuable? Getting into this detail would be inconvenient to the ponzi, enron narrative.

12. The reader is told that improvements in shale gas drilling are lowering costs but no details. The details are impressive and in a separate posting we will discuss them. Again getting into this detail would be inconvenient to the ponzi, enron narrative.

And who are among the victims of the alleged Ponzi scheme? Exxon, Chevron, Shell, Statoil who all have made substantial investments in the Marcellus shale plays. They could be wrong. They could be victims of a crime. But they are incredibly sophisticated companies that engage in massive due diligence before making big investments.

The truth I suspect is something like this:

Substantial real and actual shale gas production has been a boon for consumers by driving down substantially the price of gas, saving them $1,000 or more in gas and electric bills.

Substantial, real actual shale gas production has prevented a broad energy shock by keeping gas and electricity bills stable in the United States when oil prices jumped this spring.

But booming shale gas production has been a mixed blessing for investors in gas because the success of the industry has caused the price of gas to fall sharply.

As the price of gas has fallen from $13 per thousand cubic feet in 2008 to $4.30 today, investors have not fared as well as they had expected, because returns on investment of some shale gas plays are lower than had gas been priced at the predicted $8.

Indeed at today's $4 gas, recent improvements that reduce substantially the cost of shale gas drilling and the revenues from gas liquids are vital to keeping gas wells economic.

If gas prices fall below $4, some shale gas wells will be shut in until prices return to profitable levels.

The Marcellus shale play remains the most attractive gas reserve for investors since its wells are meeting or exceeding production estimates; it has comparatively low-costs; it is located near areas consuming large amounts of gas; and portions of it are producing significant amounts of valuable liquids.

Now that is not a radioactive, ponzi, enron story. It is not sensationalistic. Why bother writing a story with that as the dominant narrative?

The other side of the coin.

[delhalew]

The oil/gas industry is boom and bust. If you have any connection direct or indirectly, you better know that.

[texaspokieokie]

THIS ^^^^^^^

[delhalew]

The other side of the coin.

Good post. I didn't have time to dig, but anyone who knows the industry, had to know that article smelled fishy as hell.

[OUMallen]

Dear CHK Employees: By now many of you may have read or heard about a story in today’s New York Times (NYT) that questioned the productive capacity and economic quality of U.S. natural gas shale reserves, as well as energy reserve accounting practices used by E&P companies, including Chesapeake. The story is misleading, at best, and is the latest in a series of articles produced by this publication that obviously have an anti-industry bias. We know for a fact that today’s NYT story is the handiwork of the same group of environmental activists who have been the driving force behind the NYT’s ongoing series of negative articles about the use of fracking and its importance to the US natural gas supply growth revolution – which is changing the future of our nation for the better in multiple areas. It is not clear to me exactly what these environmental activists are seeking to offer as their alternative energy plan, but most that I have talked to continue to naively presume that our great country need only rely on wind and solar energy to meet our current and future energy needs. They always seem to forget that wind and solar produce less than 2% of America electricity today and are completely non-economic without ongoing government and ratepayer subsidies.

During the past seven years, Chesapeake has helped create an extremely disruptive and valuable technology in the form of shale gas, and now shale oil is on the way, and hopefully it too will be as disruptive, and will lead to lower oil prices, a stronger economy and fewer foreign military entanglements. Since the shale gas revolution and resulting confirmation of enormous domestic gas reserves, there has been a relatively small group of analysts and geologists who have doubted the future of shale gas. Their doubts have become very convenient to the environmental activists I mentioned earlier. This particular NYT reporter has apparently sought out a few of the doubters to fashion together a negative view of the U.S. natural gas industry. We also believe certain media outlets, especially the once venerable NYT, are being manipulated by those whose environmental or economic interests are being threatened by abundant natural gas supplies. We have seen for example today an email from a leader of a group called the Environmental Working Group who claimed today’s articles as this NYT reporter’s "second great story" (the first one declaring that produced water disposal from shale gas wells was unsafe) and that “we've been working with him for over 8 months. Much more to come. . .”

But I wanted you to know that this reporter’s claim of impending scarcity of natural gas supply contradicts the facts and the scientific extrapolation of those facts by the most sophisticated reservoir engineers and geoscientists in the world. Not just at Chesapeake, but by experts at many of the world’s leading energy companies that have made multi-billion-dollar, long-term investments in U.S. shale gas plays, with us and many other companies. Notable examples of these companies, besides the leading independents such as Chesapeake, Devon, Anadarko, EOG, EnCana, Talisman and others, include these leading global energy giants: Exxon, Shell, BP, Chevron, Conoco, Statoil, BHP, Total, CNOOC, Marathon, BG, KNOC, Reliance, PetroChina, Mitsui, Mitsubishi and ENI, among others. Is it really possible that all of these companies, with a combined market cap of almost $2 trillion, know less about shale gas than a NYT reporter, a few environmental activists and a handful of shale gas doubters? I seriously doubt it and I expect you do as well.

It is also ludicrous to allege that shale gas wells are underperforming as we sit awash in natural gas, with natural gas prices less than half of what they averaged in 2008. I also note that CHK and other shale gas producers are routinely beating our production forecasts – how can shale wells be underperforming if shale gas companies are beating their production forecasts and as US nat gas production has recently surged to new record highs (in fact, in 2009, thanks to shale gas, the US passed Russia as the largest natural gas producer in the world). Also, isn’t it completely illogical when this reporter argues that shale gas wells are underperforming, yet acknowledges that gas prices are less than half the price they were three years ago. Today gas shale production represents 25% of US natural gas production, if it were underperforming, how come gas prices are so low when US gas demand is at a record high?

This reality of generations’ worth of natural gas abundance is also supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration, the Colorado School of Mines’ Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and others. You also need to know that all these facts and others were provided to the newspaper by our media team well in advance of publication and the NYT predictably choose to ignore them.

By analyzing actual Chesapeake well performance, we know that the initial productivity associated with a majority of our shale gas wells have been steadily improving over the years in all of our gas shale plays, both in initial production rates and the expected ultimate recoveries of natural gas. We fully expect that the majority of these wells will be productive for 30-50 years, or even longer. In fact, the industry has vertical Devonian Shale wells in Appalachia that have been producing natural gas for more than 100 years, and I believe it is quite likely many of our horizontal shale wells will produce for a similar length of time. Further, there is no reason to believe that shale gas wells will have shorter lives than our conventional wells – some 8,000 of which are 30 years old or older.

As far as accounting practices, we follow full-cost accounting rules to the letter and routinely have our filings reviewed by the U.S. Securities and Exchange Commission, as is typical for any public company of our size. The same holds true for the rest of our industry – our reserve accounting techniques are strong and have stood the test of time for decades. In 2008 in fact, the SEC recognized that the prior rules regarding direct offset wells were too restrictive, especially in shale plays where producing horizontal wells typically prove up larger areas for development. Once a shale gas play becomes well-defined by drilling results, exploration can be more accurately described as a manufacturing process because well outcomes become very predictable, substantially reducing risk. We believe that the new modernized SEC rules very reasonably reflect the advancements in our industry’s ability to predictably produce oil and natural gas resources from unconventional formations.

In summary, you work for a great company and a great industry that is changing our country (and someday our world), much for the better. We have detractors out there, as any successful company or person has, but there are other, more prestigious and less biased, publications that really do understand the big picture as you can read today on myCHK.com and through the links I have provided below. Again, thank you for all your hard work in building our company and in delivering to all Americans a brighter future through more affordable energy, more American energy, more clean energy and more job and wealth creation. Sure, it's become a little noisier in the media since we started moving some folks’ cheese, but we will remain committed to state of the industry performance in all that we do and we will now re-double our efforts to educate as many people as possible so that they may know the truth from us rather than distortions and dishonesty from others.

We hope that every Chesapeake employee can be part of our public education outreach. At more than 11,000 strong, we are an army of “factivists” – people who have knowledge of the facts and the personal knowledge and ability to spread them. You can do this by talking to your families, friends and others in your spheres of influence (schools, churches, civic organizations, etc) about the kind of company you work for and the integrity of what we do every day for our shareholders, our communities, our states, our nation, our economy and our environment. You don’t have to be an expert to stand up and tell folks that Chesapeake is committed to doing what’s right – and that commitment is expressed every day by you and your colleagues across the company.

You can also get involved by joining Chesapeake Fed PAC, our political action committee. Our opponents are extremely well funded and organized. We need to make sure our voice is heard in Washington, DC and with elected officials who are making decisions that affect our industry, our company and our ability to operate in the many states in which shale gas and oil have been discovered. The Chesapeake Fed PAC is an important way to reach the decision makers who can impact our business for better or worse. Please look out for more information on this effort soon inviting you to support this important effort with a contribution. Thanks to each of you for making Chesapeake a leader in all we do.

Aubrey


Aubrye's response.

[Skysooner]

Okay, take this as an expert opinion. I'm a top-level reservoir engineer with one of these "Ponzi" scheme companies. Yes, the wells do decline rapidly. They never "level off", but the decline rate does drop off sharply after 8-10 years. They come in with high flow rates, and the wells are paid off in the first 2-3 years. The vast majority of profit (on a time-value of money basis) comes from the first 5-6 years of production. If the wells never hit 20 years of production, the profit has already been extracted. My company is set to break even at $3.00/mcf gas price through the factory approach they are talking about. These plays cover very large amounts of area, and you have to keep drilling to keep flow rates up.

As for the natural gas market, the near-term is bearish. However a large number of rigs have switched from drilling natural gas shale wells to oil shale wells with associated gas. This will have an effect in the next several years and natural gas should rise back up to $6-$7/mcf.

Don't buy into this guy's hype. Shale gas has only really been around since 2001. Most of these wells aren't into what we call boundary dominated flow yet, and we have spent years modeling them to determine what they will ultimately produce. This comes across as a sensationalistic piece with no real technology behind it.

[Mjcpr]

I bought into a natural gas money market fund about a year ago and it promptly went in the ****ter. If you can get that back up for me so I can dump it, I would appreciate it.

I am in the hole to the tune of tens of dollars here.

[texaspokieokie]

there's been like 16,000 gas wells drilled into the "Barnett" shale, here in tx, largely in Tarrant county. JMHO, somebody knows what they're doing, lots
of drilling for "under performing" wells.

[okie52]

The article doesn't shed any new light on NG or shale gas. It has always been price sensitive...just like oil or any other energy source. Aubrey was hedged at $9 or more per MCF well into 2010. Most engineers tell me that we need at least $6 per MCF for shale gas to be lucrative.

To state shale gas was historically unprofitable is a laugher...He11, until horizontal drilling and hydrofracking you couldn't even produce it. Everyone knew the gas was there but there wasn't an economical way to get the gas out of the ground.

We've had a glut of gas for 2-3 years now. Partly due to an economic downturn but largely due to the successful exploration of shale gas. The only real revelation that the article could contain for the average investor is that the decline curves on some shale fields are more rapid than others.

One reason many companies continue to drill gas wells is to save their leasehold acreage from expiring and hope for gas prices to rise.

Oil and Gas companies, like any smart businesses, go where the money is best. Even Chesapeake, which Aubrey originally declared as a solely "gas" company, shifted their strategy in the last two years to be pursuing oil in a large way. With oil at $100 a barrel and gas at $4 an MCF it only made sense.

It would make sense for the US to shift a lot of its transportation to NG...but little has been done in that area. One area that may be of help is Liquified Natural GAs (LNG), which can be shipped overseas. Japan's loss of its nukes may provide an additional market for natural gas producers. Germany is also giving up its nukes in the next decade. And there is always China and India.

[Boomer.....]

I bought into a natural gas money market fund about a year ago and it promptly went in the ****ter. If you can get that back up for me so I can dump it, I would appreciate it.

I am in the hole to the tune of tens of dollars here.

I guess that third chimney that you were thinking about adding is out of the question now, huh?

[Mjcpr]

I guess that third chimney that you were thinking about adding is out of the question now, huh?

It is definitely on hold at this time.

[StoopTroup]

Once you are up a donation to the TG Fund would be appreciated.

[OutlandTrophy]

don't do it Pat, it's a trap.

[Mjcpr]

Once you are up a donation to the TG Fund would be appreciated.

:D

I will see about working that into my budget.

[OUMallen]

The article doesn't shed any new light on NG or shale gas. It has always been price sensitive...just like oil or any other energy source. Aubrey was hedged at $9 or more per MCF well into 2010. Most engineers tell me that we need at least $6 per MCF for shale gas to be lucrative.

To state shale gas was historically unprofitable is a laugher...He11, until horizontal drilling and hydrofracking you couldn't even produce it. Everyone knew the gas was there but there wasn't an economical way to get the gas out of the ground.

We've had a glut of gas for 2-3 years now. Partly due to an economic downturn but largely due to the successful exploration of shale gas. The only real revelation that the article could contain for the average investor is that the decline curves on some shale fields are more rapid than others.

One reason many companies continue to drill gas wells is to save their leasehold acreage from expiring and hope for gas prices to rise.

Oil and Gas companies, like any smart businesses, go where the money is best. Even Chesapeake, which Aubrey originally declared as a solely "gas" company, shifted their strategy in the last two years to be pursuing oil in a large way. With oil at $100 a barrel and gas at $4 an MCF it only made sense.

It would make sense for the US to shift a lot of its transportation to NG...but little has been done in that area. One area that may be of help is Liquified Natural GAs (LNG), which can be shipped overseas. Japan's loss of its nukes may provide an additional market for natural gas producers. Germany is also giving up its nukes in the next decade. And there is always China and India.

I've heard that in our part of the world, i fyou can get over $4.50 or so, it's economic...

[The]

I've heard that in our part of the world, i fyou can get over $4.50 or so, it's economic...

This.

[okie52]

I've heard that in our part of the world, i fyou can get over $4.50 or so, it's economic...

Yeah, that's probably above the break even point since drilling costs have come down and completion techniques have improved. I was just saying $6 was lucrative which NG was above for much of the period in the 2000's.

[sooner_born_1960]

Chesapeake is a house of cards
I've seen this posted before. How exactly is Chesapeake a house of cards?

[The]

I've seen this posted before. How exactly is Chesapeake a house of cards?

People like to say this because they used to gamble a lot and were at one time highly leveraged.

[DIB]

People like to say this because they used to gamble a lot and were at one time highly leveraged.

Isn't that why they sold off a bunch of assets? I thought that stabilized them.

[sooner_born_1960]

People like to say this because they used to gamble a lot and were at one time highly leveraged.
Is this not the case anymore?

[The]

Isn't that why they sold off a bunch of assets? I thought that stabilized them.

Yes.

Is this not the case anymore?
No.

[Skysooner]

Chesapeake does what they do well, but they are still highly leveraged. What they have done is sold off some core assets to raise cash and went into joint ventures in others. This has undoubtedly helped them in the near-term. Their move into oil was also done with the idea of helping market value through exposure to more profitable liquids plays (although the long-term potential of some of these is in even more highly questionable than shale gas).

The main problem with Chesapeake is they are driven by geology and their land department. Their operations department is very good as well. The reservoir engineering group that does their long-term reserves isn't as robust, and they don't put the time into the science needed as much as other companies. I would question some of their back-end numbers as being very speculative and not exactly backed by known technology. You don't see their reservoir engineers at industry "best practices" meetings. They go their own way which has worked so far, but I wouldn't exactly invest in them as a "blue chip" stock.

[Chuck Bao]

Thanks to everyone posting in this thread. This is a very interesting exchange of ideas and views, all quite useful.

[The]

Thanks to everyone posting in this thread. This is a very interesting exchange of ideas and views, all quite useful.

You're welcome.

[Jacie]

that was "oil", wasn't it ???

The price of oil went in the tank too but what drove the speculators to the market, the easy loans which were sold to ever larger banks wanting to get in on the action and ultimately caused a steep crash that affected the entire country was that natural gas was being touted at $10/mcf (that is not a misprint). No way the consumer market of the 80's was going to support that, it was all speculation and a good sell job to people who normally exercise fiscal restraint when it comes to lending money. When the promised reserves proved not to exist and those that were proved could not be sold for anywhere near that $10/mcf, the market returned to reality in a big way. That tall building over by Penn Square Mall that used to have a neon piggy bank on top of it changed hands and a lot of people on Wall Street realized they'd been had as all those loans they had purchased went into default.

The drop in the price of oil from close to $20/bbl down to $10/bbl was due to other causes not related to the bursting of the gas bubble, symbolized by the Fletcher Field, which was being pushed as having huge reserves (it didn't).

The reference to Saxon Oil Company was to make it a little more personal since the two principles, Bill and Wylodean Saxon, had made a gift to the University of stock in their namesake company, which shortly thereafter dropped from $10/share to $1/share making their generous gift essentially worthless . . . but it's the thought that counts, right?

[pphilfran]

Okay, take this as an expert opinion. I'm a top-level reservoir engineer with one of these "Ponzi" scheme companies. Yes, the wells do decline rapidly. They never "level off", but the decline rate does drop off sharply after 8-10 years. They come in with high flow rates, and the wells are paid off in the first 2-3 years. The vast majority of profit (on a time-value of money basis) comes from the first 5-6 years of production. If the wells never hit 20 years of production, the profit has already been extracted. My company is set to break even at $3.00/mcf gas price through the factory approach they are talking about. These plays cover very large amounts of area, and you have to keep drilling to keep flow rates up.

As for the natural gas market, the near-term is bearish. However a large number of rigs have switched from drilling natural gas shale wells to oil shale wells with associated gas. This will have an effect in the next several years and natural gas should rise back up to $6-$7/mcf.

Don't buy into this guy's hype. Shale gas has only really been around since 2001. Most of these wells aren't into what we call boundary dominated flow yet, and we have spent years modeling them to determine what they will ultimately produce. This comes across as a sensationalistic piece with no real technology behind it.

Thanks for the info...

[okie52]

The price of oil went in the tank too but what drove the speculators to the market, the easy loans which were sold to ever larger banks wanting to get in on the action and ultimately caused a steep crash that affected the entire country was that natural gas was being touted at $10/mcf (that is not a misprint). No way the consumer market of the 80's was going to support that, it was all speculation and a good sell job to people who normally exercise fiscal restraint when it comes to lending money. When the promised reserves proved not to exist and those that were proved could not be sold for anywhere near that $10/mcf, the market returned to reality in a big way. That tall building over by Penn Square Mall that used to have a neon piggy bank on top of it changed hands and a lot of people on Wall Street realized they'd been had as all those loans they had purchased went into default.

The drop in the price of oil from close to $20/bbl down to $10/bbl was due to other causes not related to the bursting of the gas bubble, symbolized by the Fletcher Field, which was being pushed as having huge reserves (it didn't).

The reference to Saxon Oil Company was to make it a little more personal since the two principles, Bill and Wylodean Saxon, had made a gift to the University of stock in their namesake company, which shortly thereafter dropped from $10/share to $1/share making their generous gift essentially worthless . . . but it's the thought that counts, right?

The $10 plus an MCF was for deep gas below 15,000 ft in areas like the Fletcher. Most gas was on the $3 range which was fine except when the
gas bubble did occur in the mid 80's the pipelines reneged on their take or pay contracts that were set at $3 with a minimum of 25% takes.

The oil glut occurred when Reagan convinced the Saudi's in 86 to flood the market (the price actually got down to $8 a barrel) . About 90,000 Okies lost their jobs to that event (including me).

Where was the government bailout for the oilies?

[soonerbrat]

Okay, take this as an expert opinion. I'm a top-level reservoir engineer with one of these "Ponzi" scheme companies. Yes, the wells do decline rapidly. They never "level off", but the decline rate does drop off sharply after 8-10 years. They come in with high flow rates, and the wells are paid off in the first 2-3 years. The vast majority of profit (on a time-value of money basis) comes from the first 5-6 years of production. If the wells never hit 20 years of production, the profit has already been extracted. My company is set to break even at $3.00/mcf gas price through the factory approach they are talking about. These plays cover very large amounts of area, and you have to keep drilling to keep flow rates up.

As for the natural gas market, the near-term is bearish. However a large number of rigs have switched from drilling natural gas shale wells to oil shale wells with associated gas. This will have an effect in the next several years and natural gas should rise back up to $6-$7/mcf.

Don't buy into this guy's hype. Shale gas has only really been around since 2001. Most of these wells aren't into what we call boundary dominated flow yet, and we have spent years modeling them to determine what they will ultimately produce. This comes across as a sensationalistic piece with no real technology behind it.

this guy is real smart, you should listen to him :D

[okie52]

Okay, take this as an expert opinion. I'm a top-level reservoir engineer with one of these "Ponzi" scheme companies. Yes, the wells do decline rapidly. They never "level off", but the decline rate does drop off sharply after 8-10 years. They come in with high flow rates, and the wells are paid off in the first 2-3 years. The vast majority of profit (on a time-value of money basis) comes from the first 5-6 years of production. If the wells never hit 20 years of production, the profit has already been extracted. My company is set to break even at $3.00/mcf gas price through the factory approach they are talking about. These plays cover very large amounts of area, and you have to keep drilling to keep flow rates up.

As for the natural gas market, the near-term is bearish. However a large number of rigs have switched from drilling natural gas shale wells to oil shale wells with associated gas. This will have an effect in the next several years and natural gas should rise back up to $6-$7/mcf.

Don't buy into this guy's hype. Shale gas has only really been around since 2001. Most of these wells aren't into what we call boundary dominated flow yet, and we have spent years modeling them to determine what they will ultimately produce. This comes across as a sensationalistic piece with no real technology behind it.

Glad to see a petroleum engineer on board...even though you obviously perpetuate ponzi schemes.

[pphilfran]

Glad to see a petroleum engineer on board...even though you obviously perpetuate ponzi schemes.

Greedy, too....

[The]

Greedy, too....

Nah, production side folk are good people.

Landmens are greedy privateers.

[pphilfran]

Nah, production side folk are good people.

Landmens are greedy privateers.

Landmens are lower than a snake...

[okie52]

Nah, production side folk are good people.

Landmens are greedy privateers.

I can live with that.

[okie52]

Landmens are lower than a snake...

Been called worse.

[Chuck Bao]

Nah, production side folk are good people.

Landmens are greedy privateers.

Dammit, I really thought that could be a career choice for me. I love research and digging through old county records and history and stuff.

Besides that, I could be a greedy bastard. Well, I could and don't you dare laugh.

[pphilfran]

Been called worse.

It was meant as a compliment...

[okie52]

It was meant as a compliment...

:D

[The]

Dammit, I really thought that could be a career choice for me. I love research and digging through old county records and history and stuff.

Besides that, I could be a greedy bastard. Well, I could and don't you dare laugh.


Actually, it's a really good gig if you can handle the travel aspect.

[Jacie]

The oil glut occurred when Reagan convinced the Saudi's in 86 to flood the market (the price actually got down to $8 a barrel) . About 90,000 Okies lost their jobs to that event (including me).

I was one of the lucky ones, was not laid off then. When oil was bottoming out, rigs were stacked like cordwood, small companies were going belly up and tens of thousands of people left the industry forever. We thought that if oil ever climbed back to $15/bbl at least some of us would survive, if it got to $20/bbl companies would show a profit and if by some miracle it ever reached $30/bbl we'd all be rich. Now after a really bad day it doesn't go as low as $90/bbl and it feels good but how come I am still working for living?

[Breadburner]

The dude that wrote the article is full of ****....

[Memtig14]

which shales are you talking about making higher BTUs than the gas recovered from the Woodford Shale plays in OK?

Do you think the gas recovered from Coal County Woodford is different than the gas recovered from the Blaine County Woodford? Other than Blaine having more condensate and nat gas liquids.

Bakman (sp?)

[Memtig14]

I bought into a natural gas money market fund about a year ago and it promptly went in the ****ter. If you can get that back up for me so I can dump it, I would appreciate it.

I am in the hole to the tune of tens of dollars here.

Check out what Oneok stock has done in the past year. You just bought the wrong stock.

[OU Engineer]

http://newsok.com/natural-gas-industry-strikes-back-at-new-york-times-article/article/3580924?custom_click=headlines_widget

[OutlandTrophy]

Bakman (sp?)

Do the fine people at Williams and OneOK know that you don't know **** from shineola about one of the most prolific new oil and gas fields in the US?

You should be ashamed of yourself.

[Skysooner]

Bakman (sp?)

Bakken (North Dakota and Montana "shale" play).

Even though it isn't really a shale play....

[Skysooner]

this guy is real smart, you should listen to him :D

Thanks brat.

[texaspokieokie]

Okay, take this as an expert opinion. I'm a top-level reservoir engineer with one of these "Ponzi" scheme companies. Yes, the wells do decline rapidly. They never "level off", but the decline rate does drop off sharply after 8-10 years. They come in with high flow rates, and the wells are paid off in the first 2-3 years. The vast majority of profit (on a time-value of money basis) comes from the first 5-6 years of production. If the wells never hit 20 years of production, the profit has already been extracted. My company is set to break even at $3.00/mcf gas price through the factory approach they are talking about. These plays cover very large amounts of area, and you have to keep drilling to keep flow rates up.

As for the natural gas market, the near-term is bearish. However a large number of rigs have switched from drilling natural gas shale wells to oil shale wells with associated gas. This will have an effect in the next several years and natural gas should rise back up to $6-$7/mcf.

Don't buy into this guy's hype. Shale gas has only really been around since 2001. Most of these wells aren't into what we call boundary dominated flow yet, and we have spent years modeling them to determine what they will ultimately produce. This comes across as a sensationalistic piece with no real technology behind it.

you should write a letter to the editor of the Dallas Morning News. they went, hook,line & sinker for that article in the NYT.

don't really care what they think, but they spread it like a hooker does crabs.

DMN will cause panic in average folk.

[Skysooner]

you should write a letter to the editor of the Dallas Morning News. they went, hook,line & sinker for that article in the NYT.

don't really care what they think, but they spread it like a hooker does crabs.

DMN will cause panic in average folk.

The really sad part is that Dallas should know better. Shale gas started in Wise and Tarrant Co. (i.e. Irving, Ft. Worth).

[Memtig14]

Do the fine people at Williams and OneOK know that you don't know **** from shineola about one of the most prolific new oil and gas fields in the US?

You should be ashamed of yourself.

Wow....just saw this. Lighten up. I know plenty about the Bakken. I have been working in Sidney, Williston, Watford City, Dickinson for years. It was an attempt at humor.

Maybe you should be ashamed for be so arrogant.

And yes, the gas there has a very high BTU and the liquid production is amazing. Better by far than Woodford or any other production I have worked. It has been extremely profitable and would seem to be so for the foreseeable future....which was my response to the article in question.

[the-rover]

Of course, the NYT. They're the ones the EPA is using to convince environmentalists that all energy companies are evil.

Here's a better article....

http://blogs.forbes.com/christopherhelman/2011/06/27/new-york-times-is-all-hot-air-on-shale-gas/



New York Times is all hot air on shale gas

Over the weekend The New York Times published this story on how the business of drilling natural gas out of shale is some sort of ponzi scheme, even Enron-like. The article suggested that there’s really not as much gas in these plays as the industry wants us to believe, that companies are making false claims about the productivity of wells, and that the costs of extracting the gas might be so high as to not be economic.

Most of this argument is absurd on its face. The United States is currently producing more natural gas than at any time in history, on track for 27 trillion cubic feet this year. This is thanks in large part to the breakthroughs in drilling shale formations. And development of these shales has only just begun. In fact, gas is so plentiful in the U.S. right now that companies like Cheniere Energy have gotten the green light to start exporting it.

The shale play that started it all, the Barnett of northern Texas, is today producing more than ever (5.6 billion cubic feet per day) despite there being half as many rigs working the land than there was two years ago (when production was 5.3 bcfd). As analyst Dan Pickering of Tudor, Pickering & Holt wrote in a note this morning, “If wells are declining faster than expected, the Barnett would not be at record production with reduced rig count.”

As to whether the gas is economic to extract? Would drillers be investing billions a year in new wells if they weren’t getting some return out of it? Granted, today’s low price of $4.30 per thousand cubic feet is so low that drillers have literally thousands of wells that have been bored and completed but that are not yet hooked up to pipelines because they’re waiting higher prices. But a lot of the new gas being brought on line now is what’s called associated gas — that is it is produced from wells alongside oil or natural gas liquids like propane and butane. With petroleum selling for $90 a barrel, drillers in places like the Eagle Ford shale or the Bakken can give away their natural gas for nothing and still make 100% annual returns on their drilling dollars.

Aubrey McClendon, chief executive of Chesapeake Energy, featured in the Times story, and wasted no time taking the paper to task, posting this response on the Chesapeake website. “This reporter’s claim of impending scarcity of natural gas supply contradicts the facts and the scientific extrapolation of those facts by the most sophisticated reservoir engineers and geoscientists in the world,” McClendon wrote. I don’t always see eye-to-eye with McClendon, but he’s dead on with this response: “Today gas shale production represents 25% of US natural gas production, if it were underperforming, how come gas prices are so low when US gas demand is at a record high?”

What else is in the Times’ story–a few paragraphs about landowners who were promised big bucks for the gas under their land who are now left with nothing now that the reserves look marginal. Well to the extent that there were enforcable contracts with drillers leasing their land, those people have a point; but we’ve covered the issue with much more depth on this blog than the Times tries to.

As to the issue of hydro-fracking–the Times has been solidly against the practice, even though it has been perfected over decades and there is little proof that frack fluids or natural gas has infiltrated water supplies. A handful of cases out of thousands of wells fracked are currently being investigated and addressed. As for the criticism of the million-plus gallons of water required to frack a well–that’s nothing compared with the estimated 476 billion gallons a year used to irrigate golf courses. That’s about 150 million gallons per course per year. What’s more important to you? Green fairways or affordable electricity?

We would have thought that the Times would be in favor of plentiful, low-cost natural gas. It burns a lot cleaner than coal, and with nuclear off the table for now, gas is poised to fuel U.S. economic growth for more than a generation to come. I can only guess that the problem, as the Times sees it, is that as long as we have all that cheap gas, there’s precious little need for solar panels, windmills and other cornerstones of their much-heralded but slow evolving green jobs revolution.

Forbes, on the other hand, thinks it’s pretty awesome that thanks to drilling ingenuity the U.S. has proven to have one of the world’s biggest and cheapest hoards of clean-burning gas. Now that’s a story.

[Position Limit]

with gas so cheap, i dont understand how companies can do it. maybe somebody can explain to me. please. i got lucky a few years back on a natural gas play. but the contract is dogsh*t now. my theory was the amaranth advisors blowup dried up the market. it's a massive contract, but nobody wants to play. i'm puzzled.

[OUMallen]

hOUrricane sent this to me. Like he said- all you need to do is read the headline of the section to see the NYTimes' bias.

http://www.nytimes.com/interactive/us/DRILLING_DOWN_SERIES.html


In other news, NY is going to start allowing fracking for the most part, and PA regulators have decided fracking doesn't hurt groundwater.

[OUMallen]

(But that won't make national news.)

[okie52]

hOUrricane sent this to me. Like he said- all you need to do is read the headline of the section to see the NYTimes' bias.

http://www.nytimes.com/interactive/us/DRILLING_DOWN_SERIES.html


In other news, NY is going to start allowing fracking for the most part, and PA regulators have decided fracking doesn't hurt groundwater.

Well that will upset these rocket scientists:


A group of actors and celebrities -- including Ethan Hawke, Mark Ruffalo and Zoë Saldana -- have joined the fight against drilling for natural gas in upstate New York's Marcellus Shale rock.

In the video, sponsored by clean water advocacy group Clean Water Not Dirty Drilling, the featured artists comment on the threat to their water source. Ruffalo also released a statement with the launch of the video, saying: