Natural Gas Production on the Rise

Chances are, the current low gas prices are nowhere near the prices that producers initially plugged into economic models when they began leasing and drilling in shale regions.  According to Valerie Wood, President of Energy Solutions, Inc., “There is a huge timing issue as it relates to the economics of planning oil and gas exploration and those plans becoming reality.”  Natural gas production was ramping up when natural gas prices started falling.  Many expected production to taper off at some point when prices started falling, but that point hasn’t yet been reached.

Taken from Natural Gas Price Outlook 2011-2012, a publication of Energy Solutions, Inc., the outline below shows several factors that come into play relative to natural gas production.

Lower Operating Costs – Costs from the 1990s through the late 2000s rose, but costs fell sharply in 2009.  The extreme decline of natural gas prices led to a reduction of demand for equipment and as a result, operating costs declined.

Efficiency Gains – The cost of developing shale gas has declined while well productivity has increased. 

Expenses Have Declined – The cost to lease or rent a drilling rig has fallen, the cost of labor has fallen, and real estate values have declined, all of which have had a significant impact on costs.

Hedged Supplies – In the fourth quarter of 2009, producers could hedge calendar year 2010 production at a price range of around $5.25 to $6.25 per MMBtu.  If they did so, revenues were insulated from the natural gas price declines of 2010.

Leases Can Mandate Drilling – Leases can create extraordinary pressure on the industry to drill the leases in order to hold the acreage.

Use it or Lose It – When a landowner leases his/her minerals, there is sometimes a stipulation that the lessee has a limited amount of time to drill a well or the lease goes away.

Forced to Drill – Shutting in a well just because prices are low is not usually an option for most producers, because they have monthly interest payments to make.

Capital Infusions from Foreign Investors – Many cash-strapped U.S. producers have accepted capital infusions from foreign investors, who are paying big money to get involved in shale plays just to learn about the technology.  International players are helping to fund shale production, so typical economics may not apply.

Natural Gas Price Outlook 2011-2012 provides you with the tools needed to implement a cost effective natural gas strategy for 2011 and beyond.  This 40-plus page, comprehensive analysis evaluates numerous price drivers and is a must-read for those who want answers to what the future holds for natural gas prices.  To learn more and secure your copy, visit http://www.naturalgasoutlook.com.

# # # 

About Energy Solutions, Inc. 

Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 50 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.