Hoover,

The thickness of a shale is important up to the point that the induced fracture radius can access gas volumes. Since the fracture radius is a few hundred feet at most (based on micro-seismic studies), it is unlikely that shale thickness of more than about double this amount will contribute gas unless additional lateral well bores re drilled from the same vertical hole--a plus but also a cost.

The evidence presented in the BGS report acknowledges the scarce geochemical data available and the difference between subsurface and outcrop samples. That said, all indications are that the Bowland is quite thermally mature and this limits the potential for liquids. The propaganda about the Marcellus Shale's economics based on natural gas liquids must be viewed with caution. There is only a small area in southwestern Pennsylvania that has "wet" gas (and the Btu value is nothing exceptional at that compared to true wet gas); the sweet spot in northeastern Pennsylvania is 100% methane so no liquids there. Typically, the economic uplift cited from NGLs does not incude the percentage of revenue taken by plant operators which may be 50-75%.

As always, believing what the companies say about there profits must be calibrated by their financial statements. For most U.S. companies in the shale plays, free cash flow does not match their grandiose claims of huge profitability. Average capex-to-cash flow ratios are 1.5-2.0 and that is hard to square with fabulous IRRs.

Art

If the economics are there planning and lack of drilling rigs and skilled operators will be solved. Geology however take to much time to fix and this is the basic problem with fossil fuels.

Deborah Rogers has an article on Shale Play economics, you can search for:

Huge CAPEX = Free Cash Flow? Not In Shales

A case history from the Barnett Shale Play, in Texas (MMCFPD = mmcfpd = million cubic feet per day, cfe refers to natural gas + natural gas liquids converted to gas equivalent):

A couple of items follow, emphasis added, from 2007 regarding Chesapeake's DFW Airport Lease, in the Barnett Shale Play.

In 2007, Chesapeake estimated that late 2011 production from the lease would be up to 250 MMCFPD, and they estimated that production would continue for at least 50 years. In 2007, they also said that the lease " likely contains one of the thickest and best-developed reservoir facies anywhere in the play."

Actual late 2011 production from the lease, based on some data that Art Berman sent me, was only about 35 MMCFPD. Of course, the sharp decline in gas prices had an impact on drilling, but it's interesting to take a look at how the wells that Chesapeake drilled and completed on the lease in 2007 have done over the past few years. (That info is found below.)

Chesapeake Announces First Natural Gas Production from Dallas/Fort Worth International Airport Lease with Initial Sales of 30 mmcfe Per Day from First 11 Barnett Wells (October, 2007)
(Search for above title for link)

OKLAHOMA CITY--(BUSINESS WIRE)--Oct. 30, 2007--Chesapeake Energy Corporation (NYSE:CHK) today announced that it has recently initiated production of approximately 30 million cubic feet of natural gas equivalent (mmcfe) from the first 11 wells on its 18,000-acre Dallas/Fort Worth (DFW) International Airport lease. Acquired approximately one year ago for $185 million, the airport lease represents a significant value creation opportunity for Chesapeake, its minority- and women-owned business enterprise (M/WBE) partners and DFW International Airport. Based on the results of the company's proprietary 3-D seismic analysis acquired earlier this year and the drilling, completion and production results to date, the company plans to drill approximately 300 - 325 wells on the airport lease.

Assuming an estimated average recovery of approximately 2.5 - 3.0 billion cubic feet of natural gas equivalent (bcfe) gross reserves per well, the company believes that up to one trillion cubic feet of natural gas equivalent (tcfe) reserves can be produced from under the airport at an all-in finding and development cost of approximately $2.00 per thousand cubic feet of natural gas equivalent (mcfe).

Since commencing 3-D seismic operations in December 2006 and drilling operations in May 2007, Chesapeake has employed five drilling rigs on a continuous basis at the airport and anticipates maintaining that level of activity through 2011, at which time the company should have completed drilling its planned 300 - 325 wells. To date, Chesapeake has initiated drilling activities on 33 wells, has started completion activities on 18 wells and is selling natural gas from 11 wells. Chesapeake hopes to reach a peak production level from the airport lease of approximately 250 mmcfe per day by year-end 2011 and expects production to continue for at least the next 50 years.

And here is an item from the July, 2007 American Oil & Gas Reporter:

Chesapeake Images Barnett Shale Beneath DFW Airport
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But for Chesapeake Energy Corporation, the airport itself holds the ticket to expanding
the company’s presence in the red-hot play, says Larry Lunardi, Chesapeake’s vice president of geophysics.
“The Barnett has been arguably the fastest growing gas play in the world, and we are aware of precious
few opportunities to lease so much contiguous acreage,” relates Lunardi, noting that the chain link fences
surrounding the airport’s perimeter encircle 18,076 acres untouched by a drill bit. “The airport not only
represents one of the single largest remaining Barnett Shale lease opportunities, but this acreage likely
contains one of the thickest and best-developed reservoir facies anywhere in the play. That is the biggest
reason we are so excited about the DFW project.”

Update on Wells Completed in 2007

Production data that Art Berman sent me showed DFW Airport production of 52 MMCFPD in January, 2008, which would presumably be attributable to the 21 wells drilled and completed in 2007. Some data that Rockman sent me show that the wells still producing from the 2007 group produced 2.6 MMCFPD in April, 2013 (with 10 of the 21 wells already having been plugged & abandoned).

This is about a 95% simple percentage decline in a little over five years, or an exponential decline rate of about 60%/year in monthly production (2007 wells only).

Total cumulative production from the 21 wells completed in 2007, based on Rockman's data, appears to be 16.5 BCF, or about 0.8 BCF per well, after a 95% decline in production from January, 2008. Note that Art Berman puts the average EUR per well on the DFW Airport Lease at about 0.9 BCF per well.

It does seem that Chesapeake's proclamation that the DFW Airport gas wells would produce gas for at least 50 years is a "little" on the optimistic side, especially since about half of the wells that they publicized in 2007 have already been plugged and abandoned. Odd that they did not issue a press release about that.

Here's a thought experiment. Assume that the 21 wells they put on line on the DFW Airport Lease in 2007 were the total gas supply for the country. In a little over five years, our total gas supply would have dropped by 95%. This is the revolution that will power us to a virtually infinite rate of increase in oil and gas production?

A recent Citi Research report confirms much of what Art Berman and David Hughes have been saying about shale plays. Citi Research puts the decline rate from existing US natural gas production at about 24%/year. So, based on this decline rate, all we have to do in order to maintain a constant US dry natural gas production rate of 66 BCF/day over the next 10 years is to put on line, over a 10 year period, the equivalent of the peak production rate from 30 Barnett Shale Plays. The Citi Research report also implies that the industry has to replace about 100% of current US natural gas production over the next four years, in order to maintain constant production. Consider that for a moment--the industry would have to replace the productive output of every US natural gas source, from the Gulf of Mexico to the Bakken, in a four year period, in order to maintain the current natural gas production rate.

Ralph W,

Thanks for your comments on government interest in the U.K. shale plays.

The assumption that shale plays around the world will proceed much like those in North America is doubtful. For one thing, not all shales are equal--the U.S. plays are all completely different geologically and economically. Also, costs are far more expensive in Europe because of present lack of major service company presence to support the drilling and completion of wells. The fact that there is almost no private ownership of mineral rights outside of the U.S. and Canada is a huge factor--there is no incentive for U.K. landowners to support driling and production. As you mention, population density is another important factor that many forget to consider--the footprint of shale gas developement is large and not necessarily consistent with what the public wants.

The economics of offshore wind must be carefully examined to be sure that they include all costs. I have not seen any positive economics for the large offshore projects proposed for the eastern U.S.

Art

The withdrawn Al Jazeera video is mirrored here: http://www.youtube.com/watch?v=7VTzPlZDQO4

PetroSlurp,

The U.K. consumed 3 Tcf in 2011 (http://www.eia.gov/countries/cab.cfm?fips=UK). 42 Tcf yields about 14 years of demand, not 30.

The point of the post is merely to put the BGS report in perspective. This is a lot of gas (assuming people are happy with 30,000 wells to exploit it) but it's not the enormous volume reported in the press of 2,300 Tcf.

Art

Thats because the Europeans peg the natural gas price to the oil price, while the natural gas price is independent in North America. Thats why the US economy is taking advantage of cheap gas, while Europe is paying a heavy price and the Russians, Norwegians and Qataris are laughing all the way to the bank.

There is also the question of costs, and as noted up the thread, even in plays with a lot of production history, like the Barnett Shale, the reality can fall far short of optimistic expectations, unless the Chesapeake guy was misquoted, and he meant to say that the wells should last for at least 50 months, not 50 years:

Chesapeake hopes to reach a peak production level from the airport lease of approximately 250 mmcfe per day by year-end 2011 and expects production to continue for at least the next 50 years.

Westborne,

Is objective analysis naysaying?

Nowhere in the post do I say that this is not a lot of gas or that it should not be pursued because of its size. The point of the post is to place the BGS report in context.

The price of natural gas in Europe is high because it is indexed to crude oil price; it is lower in North America because is it not. Oil-price indexing may or may not continue to be the practice over coming years but it was not a factor in this analysis of potential resources.

Art

Nick,

Thanks for your suggestions.

On the "energy future of the U.K." statements, what I meant is that the U.K. is not heavily reliant on natural gas in its primary energy mix. For example, the U.S. uses almost twice as much natural gas per capita as the U.K.

The real problem for the U.K. and all developed countries is energy for transport fuel and natural gas will not solve that in anything less than decades at best. I want to dispell the mistaken notion that energy sources can be freely substituted.

Just because there is another 14 years of potential gas supply, how hopeful is that in the long-term view of many decades before other energy sources may constitute a meaningful percentage of total energy demand? Also, why do we have to use supply as fast as we can?

Then there are the obvious issues that will challenge development of this resource like public opposition to the physcial footprint of development and the lack of incentives for landowners (the state owns oil and gas mineral rights in the U.K.) to participate since there is no commecial benefit for them. Also, there is no guarantee that this play will work (see the last paragraph in my post).

Art