Tried to post this a day or so ago...technology seems not to cooperate with us. Funny how we count on it this much these days.
Oh and you're right, CHK has sold a total of only $11B in assets – it only said it was going to sell $14B worth...
And I believed them, LOL!
Actually they have only sold about $5 billion, they have immediate plans to sell another $6 bbl but have said they would like to sell $14 in total. Devil…details.
And the important point to consider is this is precisely the modis operandi of all oil and gas explorers, everywhere in the world for as long as I can remember, whether it be conventional or unconventional exploration. You move early into a basin, secure as much acreage as possible in the trend, drill some wells and identify the best spots and then farm-out or sell the less attractive acreage once you have added value by proving the play concept. It is part of the business and hardly a Ponzi scheme.
With regards to the USGS study I find it rather humerous that individuals on this site have nothing good to say about the USGS analysis of resources/reserves until they get an answer that suits their pre-conceived notion! Let’s take a look at the USGS study and I will try to point out how it suffers from the same statistical treatment as their worldwide conventional studies do. In a nutshell they use generalities and try to disguise that with Bayesian statistical treatment….nothing up my sleeve, presto!
Here is a description of how they approached the problem:
Cumulative Marcellus Shale production data were available from Pennsylvania and West Virginia for irregular time periods. These data were evaluated using a probabilistic analysis, but the quality of the data at the time of the assessment was considered not sufficient for the construction of individual well Estimated Ultimate Recovery (EUR) distributions. This probabilistic study was presented at the Petroleum Technology Transfer Council (PTTC) Conference held in Morgantown, W. Va., in March of 2011 (T. Cook, pers. comm., 2011).
and
Over the past ten years, the USGS has developed a series of EUR distributions for more than 20 shale-gas assessment units (fig. . This family of EUR distributions illustrates the total experience to date in the United States for estimated ultimate recoveries from shale-gas reservoirs. For each Marcellus AU being assessed, the geologist determines which distribution or set of distributions most nearly approximates the potential EUR distribution of the assessment units. This determination of the most appropriate EUR distribution was done along with the analysis of production data from Pennsylvania and West Virginia.
Ok, so they can’t create individual well EUR’s for the area (whereas Chesapeake and all of the other companies who operate in the area have the data to do that). So what the various press has been saying is “oh look Chesapeake is wrong and must be lying because the USGS did this study and shows the EUR/well is much lower” when in fact the USGS isn’t doing the same analysis at all….they are taking type curves from somewhere else and applying it to the various assessment areas with no discussion as to why they chose a certain type curve or what information was used to generate that type curve.
Total recovery per cell (BCFG): The geologists interpret a distribution for EUR. For example, in the Interior Marcellus AU, the EUR distribution was determined using production analogs from other assessed shale-gas reservoirs as a guide (fig.
, following an analysis of the West Virginia and Pennsylvania data.
The minimum EUR is 0.02 BCFG (standard for all gas assessments), the median EUR is 0.8 BCFG, and the maximum EUR is 12 BCFG, with a calculated mean of 1.15 BCFG.
And herein lays the smoke and mirrors that is the game of statistics. It would be fine if the entirety of the basin had similar shale characteristics, which it doesn’t. The very large range in EUR should set off alarm bells. Remember what I said above about companies like Chesapeake being early movers, tying up the basin, drilling it up and then concentrating in the best spots. When you look at the location of CHK’s more recent drilling concentration it seems to be in two areas in the central basin. And one thing that has been established is that through time average EUR per well has improved (see diagram)
The improvement in EUR/well through time is a combination of concentrating in the best spots as well as improvements in the way in which they complete the well. The EUR numbers that CHK have been talking about are the improved EUR’s that they are seeing through time, it doesn’t take into account the wells that were drilled previously. The USGS study on the other hand lumps together early poorer recovery wells with the later better recovery wells giving the erroneous impression overall recovery in the basin is bad. Statistics works against you through the lumping versus splitting approach.
Another thing to consider is that through time CHK and other companies have been changing the manner in which they drill and complete these wells. Earlier wells were short radius horizontal with a single stage frac whereas the latest wells are a kilometre or more in length and have twenty or more stage frac jobs. The following chart shows the improvement that is realized through time by this process. Note the one shown is for oil but the same can be said for gas.
As a consequence the USGS study which doesn’t discriminate between well length or completion effort (as they do not have the data to do this) ends up again lumping short radius single completions with the long radius multi-stage completions. Again statistics works against you through the lumping versus splitting approach.
Also it is important to note that the approach by the USGS is one in which they want to get at ultimate recoverable reserves and ignore in-place resources. The resource approach (used by pretty much everyone in industry) is to figure out how much shale gas is in-place both free and adsorbed. There is pretty decent science to support this approach and as more wells are drilled and more core data becomes available in the various plays the in-place numbers can be refined further. The USGS approach, on the other hand, ignores the fact that EUR in some of the wells analysed could be improved either through better completion techniques or a longer length horizontal section and/or more fracs. How much of that in-place can be recovered is the question, which may come down to how many wells can be drilled at what spacing and what cost before the economics disappear.