Monday, October 04, 2010

Monday Marcellus

Maybe we should do this once a week? 

Of all the sources of personal income in Pennsylvania these days, I really am wondering if the most volatile is the income many folks are expecting from Marcellus Shale royalities. So the first line in this article is important: "Just when it seemed prospects for natural gas prices couldn’t get worse, they have."

Still wondering what the long term impact on coal will be. Platts says things may not be as bad as it seems: Bearish gas prices won't kill coal demand: Raymond James study

Not just the Japanese investing, but big new British investment as well:  Barclays To Pay $1.15B For Stake In Chesapeake Energy Assets The thing is with all this foreign invesment... with every investor, there has to be someone out there selling equity.  Why would anyone sell if Marcellus is such the unlimited money maker it is claimed to be? There are reasons of course, but still makes you wonder a bit.

and not news per se, but the Valley New Dispatch has this: 'Thumper' trucks shake out Marcellus shale details.  Reminds me when I first noticed the thumper trucks tooling through PA, clearly a harbinger of what was taking place.



Anonymous The Wiz said...

Developing gas fields is a capital intensive undertaking. The companies are spending hundred of millions just to get land under contract. It takes 5 to 10 million for each well drilled. Then they must build expensive treatment facilities as Marcellus gas is a "dirty" gas. Then they must have hundred of miles of large transmission lines to get the gas to market. All of this takes lots of engineering, legal, environmental, marketing, and even PR dollars. And now the state House has passed what is effectively a ten percent tax. It will be years before any of this returns dividends. And much of the profit will be reinvested in further land acquisition and development.

That is why so many companies are doing deals with foreign companies, many with no petro history. They need financing to develop the gas field. Note that in Chesapeake's case, most deals are for assets outside of the Marcellus play. I'm guessing these other fields are more developed and considered less a risk by investors with a faster rate of return.

Gas prices are low but how much of an affect will it have? As technology improves, these wells produce more and more gas. There are companies now drilling laterals that are 9000 feet long. Just three years ago they were only going 3000 feet.

Also, most gas wells produce 40/50% of their life time production in the first two or three years and then production drop rapidly. The oldest fracked Marcellus well is only five years old so data is limited and speculative but the wells are so far maintaining a higher level of production then expected. Better technology + higher than expected production = lower prices.

Whats the point where cost of production is higher than market price? Don't know but I heard two years ago that they can turn a profit at $3.50/ CFM. And that will vary depending on location. With the increased technologies that may be down to $3.00 now. Just a guess.

But, this is a long term play. "Experts say" it will take forty years to fully develop the field and over a hundred years of production.

BTW, I thought Tom ridge's piece in the Sunday PG was a waste of column inches.

Tuesday, October 05, 2010 9:56:00 AM  
Blogger C. Briem said...

Wow.. seriously, is this the only place you use all that Marcellus knowledge you have. You said you don't blog anywhere else at all? Still have not leased out those 1,400 acres you were negotiating on?? I mentioned to some of my media contacts that there was a big owner-group up in Lawrence negoatiating a deal and they were interested in talking if you want to share the experience.

Tuesday, October 05, 2010 5:29:00 PM  
Anonymous The Wiz said...

Negotiations are ongoing. These gas companies are tough. Always changing the wording around. I will say that there is an increased interest in the border counties and in Ohio. It has to be the Utica that has them all excited.

I read all I can on the gas, one of the reasons I found your blog. Knowledge is key.

I have emailed about fifteen legislatures about gas taxes, pooling, and other issues and have had discussions with several of them. trying to get the most out of what I have learned.

I'm a news/political junkie. I post at several blogs around the globe but avoid the big flamer sites like the DailyKos. Its an addiction. Know any 12 Step sites???

Tuesday, October 05, 2010 10:01:00 PM  
Blogger C. Briem said...

and anyway, those longer laterals are not really working for them economically right? They know they have to actually drill at closer spacing even if the longer laterals are technically possible.

I do wonder what the profitability is at $3 or $3.50... or the royalties most will receive.

Not in the prediction biz for energy prices, but $3.50 is at least not inconceivable at this point given prices of late. One warm summer month and it all could get interesting... or so they fear.

Wednesday, October 06, 2010 6:29:00 PM  

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