Running out of Gas: Production From a Natural Gas Well

I am a big fan of looking at things over a period of time to see what kind of trends are emerging.

When I looked at the average daily production from a natural gas well from 1971 until 2008, you start to see what has been said for years, the Western basin is in decline.

Natural Gas Production per Well - 1971 to 2008 in BOED

What you see from 1997 to 2007 is that gas has declined from almost 62 BOED/well to 25 BOED/well on average. Years are on the bottom of the graph, 1 is representative of 1971 and 37 is representative of 2007. The numbers along the left side represent BOED rate.

At this pace, the average gas well will produce 12.5 BOED by 2017.

I believe that one of the major reasons for this is over drilling. In 1997, there were 48,991 natural gas wells producing 22,663 BOE per year or 62 BOED. As of 2007 there were 128,614 natural gas wells being operated in the western basin (although I am sure that some of these are now being shut in due to economics) with each well producing 9,087 BOE per year, or 25 BOED.

These figures above represent the following from 1997 to 2007:

• A 60% reduction in production per well
• Each gas well on average is producing 37 BOED less
• There at 163% more gas wells in the western basin
• 79,623 more gas wells
• Production has dropped from 22,663 BOE per well per year to 9,087 BOE

The new well drill rate , on average, for gas wells from 1997 to 2007 was 10.1% as compared to 5.1% from 1987 to 1997. So the drilling rate doubled during that 10 year time frame.

BOED Rate per Well from 1971 to 2007:

As can be seen from the rates above, each well is getting less production daily.

I believe that it is getting less economical for an oil and gas company to turn a profit on a gas well. Given that the average well costs $2.4M to drill (according to the NEB) and the average cost on a MCF for gas is $7.63 (according to the NEB), then it would take 5.25 years to recoup your costs on a well given the daily rate of 25 BOED or 150 MCF/d. In 1997, using the same rates, which is extremely high since the typical cost to drill a well has increased 86%, it would only take 2.32 years to pay out a well using $7.63 per MCF. This also assumes an average price of $7.63 per MCF each year, which is probably not the case.

One way to make a well more economical is to increase the production out of the well and hedge production to cover the costs. I do have a technology that I represent that has the ability to increase production in both a gas and oil well and will make it way more economical for a company to produce out of new and existing wells. This will be in a future blog on how to take an unprofitable company and allow it to turn a profit in a short period of time. This process involves adding reserves for 20% or less of what the industry average and combines a couple of different services.

These opinions are mine and may not reflect your view. If you would like to contact me, then please feel free to do so at info@argentis-group.com.