Insiders Sound an Alarm Amid a Natural Gas Rush - NYTimes.com

Insiders Sound an Alarm Amid a Natural Gas Rush - NYTimes.com Wow. Hats off to the Times for their online source material and links to the actual emails & reports in question. Too bad that anyone reading them with a moderate knowledge of the shale gas boom would have to conclude Urbina is way off base. The article relies on a lot of dated material. Many of the quotes and skepticism are from 2009 or 2010 source material. I was a shale gas skeptic in early 2009. Today, following the Marcellus closely, it is absurd to think that the industry's 2009 well and potential reserve estimates were overly optimistic. To the contrary, wells have proved to be bigger with flatter initial declines than anticipated. Clearly, only time will tell us how wells ultimately perform, but the evidence so far is really compelling. For reference, in March of 2009 Chesapeake suggested they had 4,100 risked net undrilled wells and expected avg. reserves per well of 3.75 BCF over their 1.3 million net acre position. I assumed they were pushing the envelope a bit, but by October 2010 their actual well results indicated average EUR over 5 BCF. PA production data at year end 2010 suggested that 5 BCF might be low for their Pennsylvania wells. At a minimum, Chesapeake publicly underestimated the potential in Bradford and Susquehanna counties by a significant factor.

Today there is a strong case to be made that shale gas has been the opposite of a Ponzi scheme. The operators that may have gotten into trouble are the ones that have underestimated the scope of the shale gas impact on gas price. The Barnett and Haynesville have not disappointed, they just have to compete with each other as well as the Marcellus and the Eagle Ford. Again with Chesapeake, on March 2009 they predicted per well EUR to average 6.5 in the Haynesville and by October 2010, their wells were averaging production consistent with 6.5 BCF. The disappointing part was that the price of gas in fall of 2010 was closer to $4.00 than the $6.00 + price that Chesapeake and nearly everyone else anticipated. Arguably the abundance of shale gas reserves is the major factor in the historically low price of gas.

For further more lucid reading I suggest Christopher Helman, Forbes and Michael Levi, Council on Foreign Relations.