Industry climbs unconventional learning curves

By OGJ editors
FORT WORTH, Oct. 6
-- The oil and gas industry is climbing technical, geological, operational, and political learning curves in tackling the numerous US unconventional gas and oil drilling plays, speakers told PennWell Corp.’s Unconventional Gas International Conference & Exhibition in Fort Worth on Oct. 5.

Development of natural gas from shale formations has transformed the gas industry worldwide, and far more progress is possible with tremendous employment and other economic benefits to the greater society and even the rest of the world, keynoters said.

It is only 7 years since Devon Energy Corp. drilled the first well that combined horizontal drilling and massive hydraulic fracturing technology, said Larry Nichols, Devon founder, chairman, and chief executive officer.

US unconventional gas plays have been a game changer for consumers, bringing stability of price and long-term supply assurance, agreed Nichols, Jeff Ventura, Range Resources Corp. president and chief operating officer, and Kathryn Klaber, Marcellus Shale Coalition (MSC) president and executive director.

Security of gas supply is being assured, perhaps for decades, they said, because operating companies have figured out how to extract gas from formations formerly bypassed intentionally, have learned often at great cost which shale plays don't work, are successfully tackling water issues, and promoting the environmental cleanliness of gas.

Operators are honing their craft, keying off the desired rates of return, Ventura said. They have learned that longer laterals and more frac stages are not always cost-effective and that closer well spacing and refracs may be superior in certain plays or portions of plays.

Shale gas and oil recovery factors are still relatively low and represent a major avenue for potential improvement, Nichols said.

Ventura said the Appalachian basin Marcellus shale formation, where his company kicked off drilling in 2004, today is producing 1.4 bcfd of gas and is the third busiest US unconventional gas play with 101 rigs. Marcellus recovery potential is 489 tcf, and Klaber noted that 1,681 wells had been drilled through mid-2010.

Most-drilled Marcellus counties in Pennsylvania are Washington with 259 wells and Greene with 150 wells in the southwest part of the state and in the northeast Bradford with 309, Tioga 261, and Susquehanna 134.

Pennsylvania's multiplicity of governmental jurisdictions provide ample educational and coordinating opportunities for MSC, she said, which represents nearly all of the Marcellus shale operators in the state. MSC looks forward to working with officials in West Virginia, which has a tax regime more onerous to the industry than Pennsylvania's, as firms begin a greater share of wells in West Virginia, she added.

How the industry tackles public and political misunderstanding will key to turning the vast identified shale resources into reserves, Nichols said as he celebrated the US Congress being in recess.

“Adverse public policy is the biggest impediment to supply security,” said Nichols, who is also chairman of the American Petroleum Institute.

Broad conversion of personal vehicles holds some promise for gas markets, but not if the oil and gas industry is taxed to pay for conversions, Nichols said. The largest potential market for gas in the US is conversion of electric power plants that now burn coal, he noted.

Ventura and Nichols agreed that a wellhead price of $5-7/Mcf at the oil field service operating costs of about a year ago should be sufficient for a 20% rate of return in most US basins due to the size of the unconventional resource, but they did not speculate on when gas prices might rise to that range.

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