shale myths and realties

7/27/2019 Shale Myths and Realties

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The Shale Revolution in the United States:

Myths and Realities

Brief ing Wash ing ton D.C.

May 22, 2013

J. David Hughes


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Conventional Wisdom

The United States is on the verge of Energy Independence thanksto the Shale REVOLUTION.

Shale Gas production will continue to grow for the foreseeablefuture (2040 at least) and prices will remain below $4.50/mcf for

the next 10 years and below $6.00/mcf for the next 20 years. Shale Gas can replace very substantial amounts of oil for

transport and coal for electricity generation.

The way is clear for U.S. LNG exports to monetize the shalebounty.

Tight Oil will allow U.S. production to exceed that of Saudi Arabiaand U.S. imports will shrink to zero.

Hughes GSR Inc, 2012


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2010 2015 2020 2025 2030 2035 2040

T r i

l l i o n

C u

b i c F e e t p e r

Y e a r

Year

LNG Imports Canada Imports Shale Gas Alaska Coalbed Methane Tight Gas

Associated Conventional Offshore

U.S. Natural Gas Supply Projection by Source, 2010-2040,EIA Reference Case 2013

Shale Gas

5 0 % of 2 0 4 0 P r o

d u c t i on

55% increase in produ ct ion by 2040

Tight Gas

Conventional

Offshore

Associated

Alaska

U.S. domestic consumption

(data from EIA Annual Energy Outlook 2013, Tables 13 and 14, http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx ) Hughes GSR Inc, 2012
http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsxhttp://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx


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1995 1999 2003 2007 2011 2015 2019 2023 2027 2031 2035 2039

Ann

u al G a sP r o

d u c t i on ( T r i l l i on

c u b i cf e e t )

G a s

P r i c e

( $ U S / m c f

)

Year

Russian Gas PriceIndonesia LNG Gas Price in JapanU.S. Henry Hub Gas PriceEIA Forecast U.S. Gas Price ($2011)

Actual U.S. Gas ProductionEIA Forecast U.S. Gas Production

EIA Projections of Gas Price and U.S. ProductionCompared to History, 1995-2040

Hughes GSR Inc, 2012 (data from EIA Annual Energy Outlook 2013, EIA, 2012; International Monetary Fund)


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2010 2011 2012 2013

T r i

l l i o n

C u b

i c F e e t p e r

Y e a r

Year

U.S. Dry Gas Production, 2010-2013

U.S. production plateau September 2012 - February 2013

(data from EIA Natural Gas Monthly, May, 2013) Hughes GSR Inc, 2013


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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

B i l l i o n

C u

b i c F e e

t p e r

D a y

Year

Other Austin ChalkBone SpringBossier

AntrimNiobraraBakkenWoodfordEagle FordFayettevilleMarcellusBarnettHaynesville

Shale Gas Production by Play, 2000-2012

(data from DIdesktop, September, 2012, fitted with 3 month centered moving average including data up to June, 2012)

Barnett Haynesville

40% of U.S. pro du ction



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B i l l i o n

C u b i c F e e

t p e r

D a y

Shale Play

Shale Gas Production by Play

(data from DI Desktop, September, 2012, for production in most cases through May-June, 2012)

Top 3 Plays = 66% of TotalTop 6 Plays = 88% of Total



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B i l l i o n

C u

b i c F e e t p e r

D a y

Year

PA MarcellusWoodford

FayettevilleBarnettHaynesville

Production from Top Five Shale Gas Plays Constituting80% of 2012 Production (3-month moving average)

Marcellus

Haynesville

Barnett

Fayetteville

Woodford

Production ex-Marcelluspeaked in January 2012


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B i l l i o n

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b i c

F e e t p e r

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Month

PA MarcellusWoodfordFayettevilleBarnettHaynesville

0

5000

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N u m

b e r o

f O p e r a

t i n g

W e l

l s

Month

Top Five Shale Gas Plays Constituting 80% of Shale GasProduction, 2011-2012

Production Number of Wells

HaynesvilleHaynesville

Barnett Barnett

Fayetteville

FayettevilleWoodford

Marcellus


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b er of O

p er a t i n gW

el l s

G a s

P r o

d u

c t i o n

( B i l l i o n c u

b i c f e e t p e r

d a y

)

Year

Gas ProductionNumber of Wells

Haynesville Gas Production and Number of Operating Wells, 2007-2012

Hughes GSR Inc, 2013 (data from DrillingInfo/HPDI, March, 2013)


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1 6 11 16 21 26 31 36 41 46

G a s

P r o d

u c t

i o n

( T h o u s a n

d c u

b i c

f e e t p e r

D a y )

Months on Production

Haynesville Type Gas Well Decline Curve

(data from DrillingInfo/HPDI, March, 2013)

Yearly DeclinesFirst year = 66%

Second year = 49%Third year = 41%

Fourth year = 49%



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b er of W

el l s

A v e r a g e

P r o

d u c t i o n p e r

W e l

l

( T h o u s a n

d c u

b i c f e e t p e r

d a y

)

Year

Average Production per WellNumber of Wells

Haynesville Average Production per Well



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Ann

u al N um

b er of W

el l sA

d d e d A

n n u a l

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d u c t

i o n A d d e d p e r

W e l l

( T h o u s a n

d c u

b i c

f e e t p e r

d a y

)

Year

Yearly Production Added per WellYearly Wells Added

Haynesville Annual Production Added per New Well


Need 680 wells per year to keep product ion f la t


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1 6 11 16 21 26 31 36 41 46

G a s

P r o d u c t

i o n

( T h o u s a n

d c u

b i c

f e e t p e r

D a y

)


Haynesville

MarcellusBarnettFayettevilleWoodford

Type Gas Well Decline Curves for Top Five Shale Gas PlaysConstituting 80% of Shale Gas Production

(data from DrillingInfo/HPDI, March, 2013)

3-Year DeclineHaynesville = 89%Marcellus = 79%

Barnett = 79%Fayetteville= 80%Woodford = 77%


Average 3-Year Decline = 84%


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P r o

d u c t

i o n

( b i l l i o n c u

b i c

f e e t p e r

d a y

)

County

Pennsylvania Marcellus Production By County


Top 2 counties = 46% of productionTop 4 counties = 68% of productionTop 6 counties = 85% of production


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1 6 11 16 21 26 31 36

G a s

P r o

d u c t

i o n

( M c f p e r

D a y

)


Bradford (24%)

Susquehanna (22%)Lycoming (12%)Greene (10%)Tioga (10%)Washington (9%)Remaining 27 Counties (15%)

Type Decline Curves for Marcellus Horizontal Wells by County


E ti t d Ulti t R f P l i M ll


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P r o

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b i c f e e t p e r

d a y

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County

Remaining Well Life

First 3 years

Estimated Ultimate Recovery for Pennsylvania MarcellusHorizontal Wells By County

62%-77% produced in first 3 years.EIA EUR estimate of 1.56 bcf

underestimates best counties.



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Well Footprint Dimock Susquehanna County PA


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Well Footprint Dimock, Susquehanna County, PA


1 Mile


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l

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2 0 1 0

Year

Marcellus

HaynesvilleBarnettFayettevilleWoodford

Marcellus Youth

Horizontal Well Quality Trends Top Five Shale Gas Plays


Fayetteville Early Middle Age

Barnett Middle Age

Haynesville

Late Middle Age

Woodford Early Old Age


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The Reality Check


" We are al l los ing ou r sh i r t s tod ay.

We're making no money. It's all in the red.

(Rex Tillerson, CEO of Exxon Mobil, Wall Street Journal , June 2012)

f


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Citigroup 2012 Projection of U.S. Shale Oil, 2010-2022(limitless well locations and no declines)

T h o u s a n

d B a r r e

l s p e r

D a y

C d Oil d Oth Li id P d ti b Sh l Pl


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B a r r e

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Shale Play

Crude Oil and Other Liquids Production by Shale Play

(data from HPDI, September, 2012, for production in most cases through May-June, 2012)

Top 2 Plays = 81% of TotalTop 5 Plays = 92% of Total


T T Ti h Oil Pl C i i 80% f P d i


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T h o u s a n

d B a r r e

l s p e r

D a y

Year

Eagle FordBakken

Top Two Tight Oil Plays Constituting 80% of Production(3-month moving average)

Bakken

Eagle Ford


Top Two Tight Oil Plays Constituting 80% of Tight Oil


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Eagle FordBakken

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Year

Eagle Ford

Bakken

Top Two Tight Oil Plays Constituting 80% of Tight OilProduction, 2011-2012

Production Number of Wells

Bakken

Eagle Ford Eagle Ford

Bakken



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O ll Fi ld D li T T Ti h Oil Pl b d


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2007 2008 2009 2010 2011 2012

O i l P r o

d u c t

i o n

( T h o u s a n

d b b l s / d a y

)

Year

Eagle Ford

Bakken

Overall Field Decline Top Two Tight Oil Plays based onProduction Decline from pre-2012 Wells


Field Decline (per year)Bakken = 44%

Eagle Ford = 38%

Average FieldDecline = 41%


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E l F d Ti ht Oil P d ti O ti W ll


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N um

b er of P r o d

u ci n gW

el l s

P r o

d u c t

i o n

( T h o u s a n

d B a r r e

l s p e r D a y

)

Year

Production at 1983 wells/year Production at 2500 wells/year Drilling Rate 1983 wells/year Drilling Rate 2500 wells/year

Eagle Ford Tight Oil Production vs Operating Wells

(data from DI Desktop, HPDI, September, 2012)

Peak 891 Kbbls/dayIn 2016 if 1983

wells added each year

Peak 1031 Kbbls/dayin 2015 if 2500



Assumptions- EIA estimate of 11406

remaining locations is asof 1/1/2010 is correct.- Well quality ismaintained at 2011 levels.


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Bakken/Three Forks Production By County,


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Montrail Mckenzie Williams Dunn Remaining 9counties

Montana

P r o

d u c t

i o n

( T h o u s a n

d B a r r e

l s p e r

d a y

)

County

Bakken/Three Forks Production By County,North Dakota and Montana

Total Production = 694 Kbbls/dayTop 2 counties = 52% of productionTop 4 counties = 85% of production



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Bakken/Three Forks Estimated Ultimate Recovery per Well


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Montrail Mckenzie Williams Dunn Lowest 9counties

Montana C u m u l a

t i v e

P r o

d u c t

i o n ( T h o u s a n

d B a r r e l s )

County

Cumulative for remainder of well life

Cumulative during first four years

a e / ee o s st ated U t ate ecove y pe WeBy County, North Dakota and Montana

All wells hit stripper status(10 barrels per day)within 12-25 years.

The 10% terminal declineassumed is likely highly

optimistic.

EIA assumes 550 Kbbls Ultimate Recovery for All Wells



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Horizontal Well Development in the Parshall Area


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pSweet Spot of the Bakken

3 Miles Hughes GSR Inc, 2013 (data from North Dakota DNR, 2013)

Bakken Shale Oil Production vs Operating Wells


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b er of P r o d

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el l s

P r o

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i o n

( T h o u s a n

d B a r r e

l s p e r D a y

)

Year

Production at 1500 wells/year Production at 2000 wells/year Drilling Rate 1500 wells/year Drilling Rate 2000 wells/year

Bakken Shale Oil Production vs Operating Wells

(data from DI Desktop, HPDI, September, 2012)




Assumptions- EIA estimate of 9767remaining locations as of 1/1/2010 is correct.-Well quality is maintainedat 2011 levels.



Horizontal Well Quality Trends Top Two Tight Oil Plays


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I n d e x e d

t o 2 0 1 0

Year

BakkenEagle Ford

Eagle Ford Youth

Horizontal Well Quality Trends Top Two Tight Oil Plays


Bakken Middle Age

h h h


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There is no such thingas a FREE LUNCH

There has been a great deal of pushback bymany in the general public and in State and

National governments to environmental issuessurrounding hydraulic fracturing.


Th i h hi


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High levels of water consumption

Methane contamination of groundwater

Disposal of produced fracture fluid potentiallycontaminating groundwater and inducing earthquakes

Industrial footprint truck traffic, air emissions etc.

Full cycle greenhouse gas emissions which may be worsethan coal

There is no such thingas a FREE LUNCH



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Implications for the U.S. The Shale Revolution has been a game -changer in that it has

temporarily reversed a terminal decline in supplies from conventionalsources. Long-term sustainability is highly questionable andenvironmental impacts are a major concern.

Almost all eggs are in the shale basket as a hope in meeting U.S. energysupply growth projections from oil and gas.

US Energy Independence with the forecast energy consumptiontrajectory is highly unlikely, barring a radical reduction in consumption.

The Shale Revolution has provided a temporary respite from declining

oil and gas production, but should not be viewed as a panacea for increasing energy consumption and exporting the bounty. Rather, itshould be used as an opportunity to create the infrastructure needed for alower energy throughput and alternative energy sources.



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