03
Sep

Natural Gas Supply Update – 9/3/08 (with data for June)

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Here's is the U.S. Lower 48 (ex Alaska) natural gas production monthly slide show. I've added a few extra slides detailing Barnett Shale production and will rough out a few more between now and the end of the month (when the July data will be released). In a nutshell, production growth remains about 4 Bcfgpd higher than year ago levels.  Rig rates continue to run high but without constant drilling the rapid decline rates indicative of the shale plays would quickly result in decelerating growth. These kind of non-stock macro pieces are always archived on the Natural Gas Tab.

EOG Comments From The Lehman Conference September 2:

  • When do E&P company's start curtailing production: They basically said that at $8 or above they stay with their current program and if we have a hot winter and prices are closer to $7 (or obviously less) they would scale back spending/drilling/production. They think most of their peers are thinking along the same lines.
  • Gas Well Break Even Economics As EOG Sees Them:
    • Gulf of Mexico: $8.50 to $9.00. I presume he is talking about shallow water (Shelf) plays.
    • U.S. Onshore: most plays need $7.50 gas. I assume he's taking an average guesstimate here of the conventional and shale plays across the country and it jives with what I've read looking at many of the plays and heard from their operators over the last few months.

U.S. Lower 48 Production Continues To Track 4 Bcfgpd Higher YoY.

Here's The Production Pie For June. Just so you know where all the natural gas comes from.

Here are the large moving pieces:

1) The Biggest Grower And Biggest Piece Of The Pie Is Still Texas.

 

The Barnett Shale Has Been Texas's Driver, Especially In The Last 3 Years. Four core counties (Denton, Johnson, Tarrant, and Wise) and 14 non-core counties produced less than 0.5 Bcfgpd at the start of the year. Nevertheless, this is up from about 0.12 Bcfgpd (120,000 Mcfgpd) at the beginning of 2005. While the RRC publishes more recent data (shown in the third graph below) the last couple of months is pretty squirelly and subject to revision so we can probably assume it is higher and not telling us what it looks to be telling us.

Barnett non core production comes from 14 counties with more than half of that coming from Parker and Hood counties. All 14 counties combined are producing just under 0.5 Bcfgpd. 

So in summary, two counties, Johnson and Tarrant have been behind a majority of growth delivered by the Barnett Shale. EOG is the lead in Johnson county and they see one more year of growth there before it is "drilled up like a pin cushion". That leaves Tarrant to carry on the growth for the Barnett.

2) Other States' Production Growth Continues - These are all the little states that produce gas but which are currently deemed to small to get their own item line in the EIA's score book. States like Arkansas, with the Fayetteville Shale are helping to move this once stagnant category higher.

3) Wyoming Continues To Inch Higher But Capacity Constraints Abound.

 

4) Gulf of Mexico. Never recovered from the storm season of 2005 and now seemingly to grow despite big lumpy volume additions like the 1 Bcfgpd Independence hub (that little lump on the far right of the charts).

5) Oklahoma :

 

6) Louisiana starting to look alive but the fear of a fast ramp exceeds the reality. This is where traders are expecting the glut of gas to come from next year. Yet when you look at the most active players in the play, those who have announced drilling programs for 2009 and 2010, the amount of gas they expect to produce here next year is only 2 to 3 Bcfgpd. While the Haynesville will likely be bigger than the Barnett's eventual 6 Bcfgpd, that dream is many years away.

7) New Mexico:

 

 

 

 

 

12 Responses to “Natural Gas Supply Update – 9/3/08 (with data for June)”

  1. 1
    crysball Says:

    Z ,
    Great Charts, however, can you also show the underlying ‘RED QUEEN’ dilemma ….i.e. we are caught on a treadmill where the decline rates are getting ever steeper[as a function of time] and the newer wells fall off more quickly [Horizontal completions drain a reservoir more rapidly]….so you have to drill more and more wells…..to keep up the same total output….GREAT FOR DRILLERS and Nat Gas Rig Manufacturers like NOV.

  2. 2
    zman Says:

    I need to add that and the rigs charts by state for a more complete picture. I meant to swipe EOG’s vintage decline curve slide but had not done yet. I was trying to get at the point by making the drill or don’t grow comment but I will find something. When you look at the horizontal rig count and the rig count jumps in Texas, Arkansas, Louisiana and you know a lot of that is coming from wells that will be down 60 to 70% from IP in the first year…wow.

  3. 3
    zman Says:

    Aubrey could do a world of good for his stock and the group by saying $7 is not enough and we will slow drilling in the Barnett where they are not rushed for time on leases.

  4. 4
    zman Says:

    EOG Comments: mid point is 14% growth for 2009. If gas prices are $8 or higher, we expect to achieve 14% next year, if gas prices average $7, they will adjust their profile lower…expect to

    Gulf of Mex: needs $8.50 or $9 for breakeven,

    onshore U.S. $7.50 gas price for breakeven in most plays.

    I’ll add EOG’s comments on the Barnett from yesterday to the post above in a minute.

  5. 5
    md Says:

    Can you fill us in tomorrows post about lease requirements. Wyoming – Rockies pipeline constraint. When will more capacity be onstream. How much current vs. future.
    Can you also do a piece on drilling for the novice. I found some good info in the Canada NG link I sent you today. What is likely cpacity for growth with drilling constraints. Can you set up a oil services tab

  6. 6
    md Says:

    Is there a way for you to plug in values for the NG players that we care about based on a $7 $8 $9 scenarios.

  7. 7
    md Says:

    Ward Automotive report out.
    Looking at it objectively
    Cars was keeping pace with slight reduction from last year. Aug. Sales dropped by 8%. YTD DN 100K Light truck sales YTD DN by 19% 1.1 million and MTD by 22%. Light truck sales inc. CUV’s with better gas mileage.
    OPEC will have what to chew on. Likely combination of economy and concern about fuel prices. While cars are going at 70 I also observe that the right lane is occupied with cars at the speed limit.
    Good thing for OPEC that China can take up the slack. be interesting to know Euro YOY increase per barrel.

    On Bloomberg
    “Onshore production is really stealing the limelight,” said George Hopley, an analyst at Barclays Capital Inc. in New York. “We should come in around 3.5 trillion in storage.”

    Hasnt done his homework on CDD’s.

    If the rest of the players share his opinion we could get another dip tomorrow. When Sept. draws comes in disappointing we could get slight rally

    URRE Any opinion on this
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.KnXOH_nlOc

  8. 8
    zman Says:

    Can you clarify what you mean by lease requirements? Lease terms vary from deal to deal.

    Rockies Express East will add 1.5 to 2 Bcfgpd capacity starting next summer. Part of it will be up in December but don’t know how much. You can’t just flip a switch and fill it, that will take time. This is from Colorado east and their will be processing and pipeline constraints lingering into 2010/11 for Wyoming gas.

    Drilling for the novice – will see if Wyoming wants to tackle that one or point out a good link. If not I will.

    In what sense do you mean capacity for growth? Kind of an open ended question. The constraints are people, steel, commodity prices, capital, transportation, processing.

    Re gas price sensitivities it takes a bit of work to get really close. You’ll see analysts and companies with sensitivity sheets ($xx move in cash flow for a $1 change in oil or a dime change in natural gas) and I take a look at those from time to time. I’ll see what I can dig up for later in the week or week end.

    Oil service tab – yeah, been doing a little reorganizing of the tabs and that is on the list.

  9. 9
    Fred Says:

    Here’s the link to the Bloomberg T. Boone interview earlier today. He sounds like a Zman subscriber and been reading this blog.

    http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vLP4zVEY3rG0.asf

  10. 10
    Wyoming Says:

    On the decline comment of horizontal and vertical wells, a quick solution for the E&P’s is to simply down space (infill drill). Also, the flavor of the future will be re-fracturing. Re-frac’s will actually increase reserves. Look for this squeezing of the reservoir in the Barnett especially. Trend is to hit the well about 4 to 5 years after the initial completion.

    Drilling primer; go to my favorite site Wikipedia under “Oil Well”. I would put in the actual link but most get caught up in the old spam blocker. Site has all the basics of a drill, completion, production, abandonment …

    Drilling constraints; Usually not a problem. Once in a while you get:

    1. Lack of identified locations (thanks geologists).
    2. Winter range, raptor nesting, Environmental impact Statements incomplete ….
    3. Lack of equipment, usually get by this with alternative techniques.

    Not sure on this question, we may have to go back and forth.

  11. 11
    Bleemus Says:

    RIG Transocean: Raising ests after September fleet status report – Credit Suisse (122.12 )

    Credit Suisse is raising their 08/09 EPS ests on RIG to $13.90/$15.82 from $13.69/$16.00 (consensus $14.42/$16.42) on the recent rig report. Firm says report on co’s revamped fleet status report confirmed favorable offshore drilling fundamentals remain intact, with the bulk of new contracts exceeding their expectations. Firm notes more good than bad in jackup rates and activity. RIG remains their top pick in the group given its discounted valuation and deepwater optionality. Firm believes a premium valuation is warranted given the future growth rate, backlog, and superior free cash flow generation profile.

  12. 12
    tomdavis12 Says:

    Bleemus: In addition to what you pointed out, the lower number in ’09 reflects the thought that there will be longer down time for the Harvey H Ward jackup. The price expectation is $172/sh in 12 months.

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