Thursday, February 18, 2010

Shale Skeptic Arthur Berman to Resurface Soon

Is skepticism the new optimism?  I don't know, but with the recent negative report from Bernstein Research and a new upcoming analysis from shale skeptic Arthur Berman, the questions about the viability of the Haynesville Shale are back.  I haven't seen Mr. Berman's analysis, but in reading Allen Brooks' "Musings from the Oil Patch" newsletter, he provided something of a preview of it (it is the first article at the link).

The basic conclusion of both negative reports is that the core of the Haynesville Shale is smaller than previously reported.  Berman has been claiming for a while that most Haynesville Shale wells are not economic at low to moderate commodity prices.  There is also the suggestion that the Haynesville Play will not be conducive to "manufacturing" operations. 

What's interesting about this new analysis is that there is a little more physical explanation for these conclusions, specifically fault lines in the shale that help determine the core areas.  The map below is from Mr. Berman's soon to be published article. 

Ultimately, we won't know the right answer to the question of the Haynesville Shale's productivity for years to come.  The measures of well economics are much more complex than well capex cost and IP rates.  As Mr. Brooks points out in his newsletter, the finding and development (F&D) costs are a large part of the equation.  Those costs can be determined at a gross level, but what is not known is how they are broken down on a well level basis because that is dependent on production volumes, and it is too early to tell what those will be with certainty. 

One key issue:  Mr. Berman suggests that the recoveries (EUR) for Haynesville wells will be 2.0 Bcfe, while most producers use figures ranging from 5.0 to 7.5 Bcfe (in its conference call, Questar mentioned that it has some wells booked at 10 Bcfe EUR).  When you slash the denominator in the equation by well more than half, the numbers change drastically and things start to look pretty ugly. 

At the end of this round of debate, the question will remain the same and the answers will still be many.


Anonymous said...

Just wondering if you seen this:

Robert Hutchinson said...

Not yet - I've been waiting for it. Thanks.