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Gas reserve additions per rig-year seen trending lower

By OGJ editors

HOUSTON, July 2 -- Lower 48 natural gas reserve additions per rig-year are declining while, counterintuitively, the reserves-to-production (R/P) ratio of new reserve additions is climbing.

Those trends were detailed in a new report by Stephen A. Smith, founder of Stephen Smith Energy Associates, Natchez, Miss..

Smith noted that rig productivity, measured as billion cubic feet of reserve additions per average gas rig-year, has been trending lower. Over the last 5 years, he said, gas reserve additions have averaged 37.7 bcf/rig-year, down from a previous average of 43 bcf/rig-year.

"Without the boost from coalbed methane additions in 2000 and 2001," he said, "the 1987-2001 average would be close to 30 bcf/rig-year."

Rising R/P ratio
Smith said, "The second trend is less obvious in the aggregate Lower 48 gas reserves data and mainly inferred: The reserves-to-production ratio of new reserve additions appears to be trending up."

He said that effect is likely due to the combined impact of the following factors:

-- Deepwater Gulf of Mexico gas reserves are booked when the development project is sanctioned. First gas production typically lags the booking of reserves by several years.

-- The gulf shelf and Gulf Coast onshore have unusually low R/P ratios. As a result of depletion, the share of total Lower 48 gas supply from those areas is likely to decline.

-- Coalbed methane and conventional Rocky Mountain gas both have very high R/P rations, and the share of total Lower 48 supplies from those regions is likely to increase.

-- In addition to the higher R/P ratios resulting from the geological characteristics of Rocky Mountain and coalbed methane reservoirs, the lack of adequate pipeline capacity and other infrastructure in the Rockies increases the time between when reserves are booked and first production.

"The conclusion we draw is that, despite lower bcf/rig-year productivity, the substantial increase in (the US) gas rig count is likely to more than replace production for the next few years," said Smith.

"However, over the last 5 years, Lower 48 gas reserves increased by 8%, but Lower 48 production increased by only 2%," he said.

"With an average gas price of $4.07/Mcf in 2001, we can reasonably conclude that production was supply-limited (no one curtailing production waiting for better prices), and that the reserves-to-deliverability ratio increased by 6% over this interval. We expect more of that."

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