Below, our Mid Atlantic energy analyst friend makes two points that seem contradictory.  First, he demonstrates through history what we have always known about recovery of shale oil and gas: that the productive lives of shale plays tend to be much shorter those of conventional oil and gas reservoirs.  Second, he emphasizes the incredible productivity impact rapidly developing technology has on shale projects.

The first point suggests that the shale era could come and go quickly; the second point promises that technology will sustain shale longer than previously thought.

Alaska and Alberta both produce oil and gas resources tending to require higher costs to produce and transport. We believe it safe to assume that technology will continue to improve productivity and profitability of oil and gas shale resources both in North America and worldwide.

While conventional recovery techniques will also receive the blessing of evolving technology local and federal governments depending on conventional — and unconventional — hydrocarbon revenue should focus on the future.  They should focus on making the oil and gas investments within their borders as profitable as possible.

Maximum profitability of oil and gas recovery benefits producers who provide jobs; but higher wellhead values also benefit government royalty and tax revenue support.

To maximize jobs and revenue, government decision makers should begin the think globally, not just locally.  They should consider the effect of their tax and regulatory burdens — among other variables — on oil and gas investors.  For those company investors have governing boards who choose the best capital investment projects from the alternatives management recommends to them–from among competing areas.

Assuming North American state, provincial and federal governments can become beacons of predictability — and reasonable tax and regulatory hosts — the world, post-low oil prices, could find an unusually strong North American investment trend supporting the continuing prosperity of citizens in both countries.

However, we do remember an Army drill instructor at Fort Benning’s Officer Candidate School shouting high decibels into our ear every time we made a tactical error in the field, Candidate: Don’t assume.  Remember the first three letters of the word!

-dh


From our anonymous, Mid Atlantic, energy analyst friend:

A lot gets written about the weekly rig count data, as if it will show what will happen to natural gas (or crude oil) production in coming months. We have written a lot about it also, but mostly to debunk it as a source of information. The gas rig count is down 90% (!) since its recent peak, yet natural gas production has continued to climb until very recently.  In short, the nature of production has changed in so many ways that the volume of rigs, without a great deal context, tells us little.

But the latest data show us one “trend” (or a part of it).

  • The “shale revolution started drilling for natural gas in the Barnett a fairly short ten years ago. There are now zero gas rigs drilling in the Barnett
  • The next field to be “discovered” was the Woodford. There are now only two gas rigs anywhere in the Woodford, andzero rigs in two of its components.
  • About the same time, the Fayetteville became a big play. There are now zero rigs drilling for gas in this field.

We often note that cycles in the Energy sector go in periods of seven to ten years. While price has a lot to do with it … there is a finite limit to these shale formations that is not adequately appreciated.