Shale Gas Rig Count Could Implode Here If Prices Don’t Rebound
The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million each to sell gas at a loss into an over-supplied market.
We first evaluated the Haynesville Shale in 2009 and the conclusion then was the same as it is today: the average well by top operators will produce about 4 Bcf and is not commercial at gas prices below $6 or $7 per Mcf. The play has two insurmountable geological problems. First, the shale is not brittle and, therefore, does not respond well to hydraulic fracturing. Second, the reservoir is over-pressured and compacts when gas is produced.
We have heard fairy tales from operators over the years about how they will improve the miserable performance of Haynesville Shale wells. These included choking back production, re-fracking old wells and, recently, drilling 10,000 foot laterals. None of these approaches worked because bad geology cannot be improved with expensive technology.
We evaluated well performance for the 5 biggest producers in the play based on cumulative gas production and the number of producing wells
(Table 1).
Table 1. Key operators in the Haynesville Shale play based on number of producing wells and cumulative gas production. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Related: Oil Jobs Lost: 250.000 And Counting, Texas Likely To See Massive Layoffs Soon
We did standard rate vs. time decline-curve analysis by operator and by year of first production to forecast average well reserves (an example is shown in Figure 1).
Figure 1. Example of Haynesville Shale decline-curve analysis showing standard log of rate vs. time, rate vs. cumulative production and log of rate vs. log of time plots for a group of XTO Energy wells with first production in 2011. Source: Drilling Info and Labyrinth Consulting Services, Inc. (click image to enlarge)
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