Thursday, May 21, 2009

"Many Barnetts" and other Roberto Aguilera Pearls

Robert Aquilera, one of the world's most foremost experts on tight gas engineering, shares his insight on shale and tight gas. Here's an excerpt:

ET: Speaking of prices, what is a sustainable price for natural gas? I ask because I’ve heard some producers insist that shale gas wouldn’t be profitable when prices are under $8. Now, I’m hearing $5. What’s your take on the relationship between the relatively high cost of drilling for tight gas and the market price which has been so volatile lately?

RA: My take is that $5 to $6 will work in most cases and will make most shale plays competitive. However, there are several factors that have to be taken into account while considering your question. Depth of the reservoir and its relation to the size, lateral extent, thickness, initial productivity and production decline of the prize are key considerations. There are deep and shallow shale gas reservoirs. For example the Haynesville shales can reach more that 13,000 ft. On the other hand the Fayettville shales can be found at less than 4,000 ft. And there are even shallower shales with reasonable potential in Saskatchewan at about 1,000 ft. Availability of drilling, completion and hydraulic fracturing equipment is another key consideration. For example, for the same stimulation; mobilization of hydraulic fracturing equipment, materials and personnel to the Saint Lawrence Lowlands of Quebec to stimulate the Utica shale is very expensive compared with a more mature area where the required equipment might be readily available.

Strategic alliances with service companies would help to mitigate this problem. Proximity to suitable markets, government support and stockholder engagement are other key considerations. Many of these issues can be incorporated in cumulative long run supply curves similar to the ones developed for global conventional gas and other resources by Roberto F. Aguilera and his professors in the Division of Mineral Economics at the Colorado School of Mines. These graphs present cross-plots of total average production cost per unit volume vs. future gas volumes and as such give an idea as to what are reasonable prices to develop each one of the plays under consideration.

ET: We also discussed the Barnett Shale in Texas. You said “There will be many Barnetts around the world.” What did you mean? And where do you expect the future Barnetts to be found?

RA: As indicated in our World Petroleum Congress (WPC) paper you mention in the introduction of this interview, tight gas reservoirs are present in almost all petroleum provinces around the world. The same holds true for shales -- more so because shales are a very important source rock. So my vision of several Barnetts around the world stems from the pervasive presence of shales. Black shales of South America and Africa are similar to those of North America in their association with sandstone and siltstone. Black shales of central Europe and the western part of the former Soviet Union are associated with carbonate reefs, an association that as far as I know is not present in North America. But in the same way that all naturally fractured reservoirs are different, all shale gas reservoirs are also different. I like to consider each one as a research problem by itself. Repeating the same successful drilling and
completion approach carried out in one shale reservoir, without the necessary
research and careful evaluation, may lead to major fiascos, headaches and financial losses in another shale reservoir. As to where the future Barnetts can
be found, I anticipate that it will occur primarily in regions which previously
have shown significant discoveries of oil and gas. But because of the supply and
demand issues mentioned above, it will take several years (maybe decades in some
areas) before shales outside the US and Canada are developed.

- Brewskie

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