Thursday, January 26, 2012

Conoco to Cut Gas Production too...But How Much Difference Will it Make?

ConocoPhillips announced yesterday that it will shut in production on about 4% of its natural gas in North America and divert capital to oil and liquids areas such as the Eagle Ford Shale.  Conoco, which a very limited presence in the Haynesville Shale, is limited in how much gas it can shut in because 2/3 of its gas is associated gas from oil drilling and much of the company's production is done in partnership with other companies that don't want to lose the cash flow.

While it's good to see producers taking proactive steps to reduce the supply glut, I question if it will have any net impact because the producers are using the same resources to pursue oil and liquids, which yield associated gas.  There may be a net negative impact to gas production, but it will be less than advertised.

Another producer, Continental Resources, which is highly focused on drilling for oil in the Bakken Shale, will see a dry gas production increase of 28% largely because of associated gas from oil drilling.  When you drill for oil, you usually get gas too.

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