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Today’s Monster Wells Are the Long Tails of Tomorrow

I am reading Russell Gold’s book, “The Boom”, and in the beginning chapters he covers the history of the shale revolution, reviewing several early shale wells in the original shale plays.

The E&P space is flooded now more than ever with daily information about well results, new emerging plays, gathering and processing commitments, pipeline expansions, etc.  It is a veritable fire hose of information to keep up with.  In addition, at times there is an almost boastful atmosphere by producers of “my well is bigger than yours”.   This summer Rice Energy took it to new levels by posting a YouTube video on their homepage of the flare the Bigfoot 9H Utica shale well in Belmont County, OH which came in at an impressive 5-day choked flow back of 42 MMcf/d.  I can’t find the video anymore but it was impressive.  See Bigfoot photo above from the cover of a recent Rice Energy investor deck.

The reality is the Bigfoot well, while impressive today, will be a distant memory in several years as the well’s production declines and E&Ps move to other areas or plays driven by changing markets and technology.

So I started digging around and looking at the production results of these early shale wells such as Mitchell Energy’s CW Slay well in the Barnett first drilled in 1982 , Range Resource’s Renz well in the Marcellus drilled in 2005 and Petrohawk’s STS-241 1H well in the Eagle Ford drilled in 2008.  I wanted to look at ‘long tails’, but these early wells were not ideal as they laid the foundation for drilling and completion techniques in these plays  which have evolved over time resulting in more consistent performance from other later wells.

The Fayetteville Shale seemed like a good place to focus in my hunt for ‘long tails’ since it is a dry gas play where IP rates have been consistent, active rigs have declined and production growth is flat.  Horizontal gas wells brought into production in the Fayetteville are as follows: 36 in 2006, 126 in 2007, 265 in 2008, 227 in 2009, 231 in 2010, 206 in 2011, 235 in 2012 and dropping to 153 in 2013.

I chose to look at one of the top operators in the play, Southwestern Energy (NYSE: SWN), and the year 2009,  which was a peak year in terms of operator activity.  I also chose to look only at one of the plays’s core counties – the south side of Van Buren County.

Here is a slide from a recent SWN investor deck showing the core Fayetteville:

I then chose 5 arbitrary SWN wells that had average monthly production of more than 3 MMcf/d in Van Buren County in 2009.    Here are the wells:

While big new shale wells are key to outpacing sharp production declines in shale plays, the compounded effect of many of these old shale wells create a long tail production base. Southwestern Energy’s Fayetteville dry gas type curve peaks around 3 MMcf/d (depending on lateral length).  So in this particular case, five wells that are five years into production create the cumulative effect of one average well that matches SWN’s type curve.   This would suggest the 151 wells brought into production in 2009 by SWN would represent about 82 MMcf/d of legacy production today.  While this is not a huge slug of production, it is production that is much less sensitive to changing gas market fundamentals since the cost of continuing to operate proved reserve production (PDP) such as this is very low.

Long tails mean that a portion of natural gas production is relatively insensitive to gas prices and that the long tails of today’s monster wells may pressure the marginal economics of producers tomorrow.

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Andrew is the CEO at BTU Analytics, LLC and has worked in the energy and technology industries for over 20 years. Prior to BTU Analytics, he was the Senior Commercial Director of North American Natural Gas at Platts-Bentek Energy where he led the natural gas analytics team. Andrew’s past experience includes positions at Amoco Production Company and Constellation Energy. He holds a Masters in Energy and Environmental Analysis from Boston University and a Bachelors in Geology from Colorado College.

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