The Economic Vigor The Economic Vigor (or Fragility?) (or Fragility?) of Unconventional Oil of Unconventional Oil and Gas and Gas in Kansas in Kansas K. David Newell, Ph.D. K. David Newell, Ph.D. Kansas Geological Survey Kansas Geological Survey University of Kansas University of Kansas Lawrence, Kansas Lawrence, Kansas
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The Economic Vigor (or Fragility?) of Unconventional Oil and Gas in Kansas
The Economic Vigor (or Fragility?) of Unconventional Oil and Gas in Kansas. K. David Newell, Ph.D. Kansas Geological Survey University of Kansas Lawrence, Kansas. Kansas Oil and Gas Fields. Current Oil and Gas Prices. Late August, 2012 oil price (WTI) = $95/bbl - PowerPoint PPT Presentation
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The Economic Vigor The Economic Vigor (or Fragility?) (or Fragility?)
of Unconventional Oil of Unconventional Oil and Gas and Gas in Kansasin Kansas
K. David Newell, Ph.D.K. David Newell, Ph.D.Kansas Geological SurveyKansas Geological Survey
University of KansasUniversity of KansasLawrence, KansasLawrence, Kansas
Kansas Oil and Gas Kansas Oil and Gas FieldsFields
Current Oil and Gas Current Oil and Gas PricesPrices
Late August, 2012 oil price (WTI) = Late August, 2012 oil price (WTI) = $95/bbl$95/bbl
Late August, 2012 natural gas wellhead Late August, 2012 natural gas wellhead price = $2.75/mcfprice = $2.75/mcf
On basis of BTUs, approx. 6000 cubic On basis of BTUs, approx. 6000 cubic feet of natural gas (i.e., 6 mcf = 1 barrel feet of natural gas (i.e., 6 mcf = 1 barrel [bbl]) of oil[bbl]) of oil
6 mcf natural gas fetches $16.50 vs. $95 6 mcf natural gas fetches $16.50 vs. $95 for oilfor oil
THEREFORE…unless some prospect THEREFORE…unless some prospect represents a potential for prolific rates represents a potential for prolific rates and volumes of natural gas, no one is and volumes of natural gas, no one is now looking solely for itnow looking solely for it
GENERALIZATIOGENERALIZATIONN
Most companies prefer a Most companies prefer a return of drilling and return of drilling and completion costs of a completion costs of a
producing well in about 2 to producing well in about 2 to 3 years3 years
(operational costs, equipment, dry (operational costs, equipment, dry holes, salt-water disposal wells, holes, salt-water disposal wells, etc. have to be paid, but are not etc. have to be paid, but are not
included in this calculation)included in this calculation)
Types of Oil and Gas Types of Oil and Gas WellsWells
Section with CBM production
Section with CBM well, no production
Gas pipeline
Miss.-Penn.outcrop
MPI
Humbolt Fault System(western limit of
Cherokee and ForestCity Basins)
Chautauqua Montgomery Neosho Cherokee
Crawford
Bourbon
Linn
Miami
Johnson
Wyandotte
LeavenworthJefferson
Douglas
Shawnee
Atchison
Doniphan
BrownNemahaMarshall
Washington
RileyClay
Wabaunsee
Jackson
Pottawatomie
Geary
Dickinson
Morris
Franklin
Osage
Lyon
CoffeyAnderson
Woodson
Allen
Wilson
Neosho
Elk
Greenwood
Butler
Chase
Marion
Harvey
Sedgwick
Sumner Cowley
25 miles 25 km
KANSAS COALBED METHANE
PRODUCTION
CALCULATED CUMULATIVE PRODUCTION CALCULATED CUMULATIVE PRODUCTION CBM WELLS IN SOUTHEASTERN KANSASCBM WELLS IN SOUTHEASTERN KANSAS
(assuming typical declines, (assuming typical declines, 5 mcf/day production shut-down)5 mcf/day production shut-down)
0 5 10 15 20 250
50,000
100,000
150,000
200,000
250,000
mcf(thousandcubic ft)
years producing
90th-percentile well4314 mcf/month peak prod.233.7 million cubic ft in 23 years
65th-percentile (average) well2000 mcf/month peak prod.101.4 million cubic ft in 17 years
75th-percentile well2498 mcf/month peak prod.130.3 million cubic ft in 19 years
50th-percentile (median) well1466 mcf/month peak prod.71.6 million cubic ft in 15 years
25th-percentile well812 mcf/month peak prod.33.6 million cubic ft in 10 years
10th-percentile well380 mcf/month peak prod.8.8 million cubic ft in 4 years $125K @ $9/mcf
$125K @ $6/mcf
$125K @ $3/mcf
CumulativeProduction
CALCULATED CUMULATIVE PRODUCTION CALCULATED CUMULATIVE PRODUCTION CBM WELLS IN SOUTHEASTERN KANSASCBM WELLS IN SOUTHEASTERN KANSAS
(assuming typical declines, (assuming typical declines, 5 mcf/day production shut-down)5 mcf/day production shut-down)
0 5 10 15 20 250
50,000
100,000
150,000
200,000
250,000
mcf(thousandcubic ft)
years producing
90th-percentile well4314 mcf/month peak prod.233.7 million cubic ft in 23 years
65th-percentile (average) well2000 mcf/month peak prod.101.4 million cubic ft in 17 years
75th-percentile well2498 mcf/month peak prod.130.3 million cubic ft in 19 years
50th-percentile (median) well1466 mcf/month peak prod.71.6 million cubic ft in 15 years
25th-percentile well812 mcf/month peak prod.33.6 million cubic ft in 10 years
10th-percentile well380 mcf/month peak prod.8.8 million cubic ft in 4 years $125K @ $9/mcf
$125K @ $6/mcf
$125K @ $3/mcf
% of CBM wells paying $125Kdrilling & completion costs
in 2 years 8% @ $2/mcf18% @ $3/mcf50% @ $6/mcf70% @ $9/mcf
CumulativeProduction
2 years
1995 2000 2005
Number of Wells per Year
1985 199019810
200
400
600
800
1000
1200
1400
1600
Year
Total Number of Wells with Spud Dates = 7,672
7 9 0 7 11 12 3 2 10
70 86 8851
3412 11
31 41 52 72
234
300
479
980
687
1598
1183
968*
78*
2009
NaturalGas Price
($ perMMBTU)
20001990 1995 200519850
4
8
12
16
2010
Coalbed Natural Gas Wells Drilled Coalbed Natural Gas Wells Drilled per Yearper Year
in Eastern Kansas vs. Gas Pricein Eastern Kansas vs. Gas Price
What will happen What will happen to the price for oil to the price for oil
and gas?and gas?
Kansas City Kansas City StarStar
April 1988April 1988
“The story of the “The story of the dying Hugoton dying Hugoton gas field, how gas field, how
America handled America handled its natural gas its natural gas resources and resources and why in the not-why in the not-
too-distant too-distant future your gas future your gas bills will make bills will make you scream”you scream”
0
100
200
300
400
500
600
700
800
900
1000
19
30
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
An
nu
al
Ga
s P
rod
uc
tio
n (
Bc
f)
0
5
10
15
20
25
30
35
40
45
Cu
mu
lati
ve
Pro
du
cti
on
(T
cf)CBM
Other
Hugoton
Panoma
Cumulative
Kansas Gas Production Kansas Gas Production 1930-2007 1930-2007
KC Star Article
1995 2000 2005
Number of Wells per Year
1985 199019810
200
400
600
800
1000
1200
1400
1600
Year
Total Number of Wells with Spud Dates = 7,672
7 9 0 7 11 12 3 2 10
70 86 8851
3412 11
31 41 52 72
234
300
479
980
687
1598
1183
968*
78*
2009
NaturalGas Price
($ perMMBTU)
20001990 1995 200519850
4
8
12
16
2010
Coalbed Natural Gas WellsCoalbed Natural Gas WellsDrilled per Year in Eastern KansasDrilled per Year in Eastern Kansas
KC Star Article
Moral of this Moral of this Story?Story?
Don’t believe everything that you read in the Don’t believe everything that you read in the newspapers?newspapers?
Bad news always sells?Bad news always sells?
A pessimist is usually right, given enough time?A pessimist is usually right, given enough time?
The speaker has a long-standing grudge The speaker has a long-standing grudge against the KC Star?against the KC Star?
NO, NOT NECESSARILY ANY OF THE NO, NOT NECESSARILY ANY OF THE ABOVE…ABOVE…
What will happen What will happen to the price for oil to the price for oil
and gas?and gas?ANSWER: It’s hard to predict ANSWER: It’s hard to predict because it’s governed by many because it’s governed by many complex factors, some of which complex factors, some of which
are unpredictableare unpredictable
Supply and Demand Supply and Demand of Oil and Natural Gas of Oil and Natural Gas
(thus its price) are influenced (thus its price) are influenced by:by:
Geology Geology (fewer and poorer wells, supply goes down)(fewer and poorer wells, supply goes down) State of the EconomyState of the Economy (economy up, supply goes (economy up, supply goes
down)down) Producers Reaction to PriceProducers Reaction to Price (price low, supply goes (price low, supply goes
down)down) U.S. Dollar U.S. Dollar (dollar down, supply goes down)(dollar down, supply goes down) Oil-Cartel BehaviorOil-Cartel Behavior (supply usually goes down) (supply usually goes down)
The “Health” of Two Kansas The “Health” of Two Kansas Unconventional PlaysUnconventional Plays
““Median commodity price” (where 50% Median commodity price” (where 50% of wells pay out in two years or less) for of wells pay out in two years or less) for southeastern Kansas CBM play is southeastern Kansas CBM play is ~$6/mcf.~$6/mcf. This play is moribund at the This play is moribund at the current price of $2.75/mcf.current price of $2.75/mcf.
““Median commodity price” (where 50% Median commodity price” (where 50% of wells pay out in two years or less) for of wells pay out in two years or less) for Kansas Mississippian Horizontal play is Kansas Mississippian Horizontal play is ~$100/bbl.~$100/bbl. This play is reasonably This play is reasonably healthy at the current price of $95/bbl.healthy at the current price of $95/bbl.
The Economic Vigor The Economic Vigor (or Fragility?) (or Fragility?)
of Unconventional Oil of Unconventional Oil and Gas and Gas in Kansasin Kansas
K. David Newell, Ph.D.K. David Newell, Ph.D.Kansas Geological SurveyKansas Geological Survey
University of KansasUniversity of KansasLawrence, KansasLawrence, Kansas