Global gas producer BG Group plc, which has substantial production under way in the Haynesville Shale and growing output in the Marcellus, said Tuesday its net production in the United States by 2015 will nearly double to 190,000 boe/d from the current 100,000 boe/d.
The company's strategic forecasts, which were issued by executives during a conference call, offered a counterpoint to many energy analysts' predictions of a global gas glut.
Last year was "pivotal" because the UK-based company's "largest growth opportunities in history began to crystallize," said CEO Frank Chapman. Perhaps better known by some for its global liquefied natural gas (LNG) trade, BG has a solid shale portfolio in the United States with partner EXCO Resources Inc.
In late June 2009 BG paid $1.3 billion for a half-stake in EXCO's 120,000-plus net acres in the Haynesville Shale and Deep Bossier Sands (see Daily GPI, July 1, 2009). Less than a year later the partners increased their Texas/Louisiana holdings after buying privately held Common Resources LLC for $446 million in cash (see Daily GPI, April 22, 2010). Three weeks later BG agreed to pay $950 million for half of EXCO's Appalachian Basin leasehold (see Daily GPI, May 11, 2010).
Yes, gas prices may be low, but is the United States "awash" in gas and the world overflowing with LNG supplies? "We just do not agree with those views," said Chapman.
The International Energy Agency predicted last November that a surge in unconventional gas production over the coming decade would lead to low gas prices and too much pipeline and liquid gas transportation capacity. Chapman disagrees. He said the IEA is "on its own" with its "conservative views."
World gas demand, according to BG forecasts, is tracking to jump by one-third over the next decade, with close to 60% of new demand coming from undeveloped countries -- those not in the OECD, or Organisation for Economic Co-operation and Development. To meet demand by 2020, an investment of $2 trillion is needed to produce the equivalent of 20 times the gas now produced by Norway, said the CEO.
"I fail to see where this [glut] is going to come from...in order to meet growing demand," Chapman said. "It's a heck of a challenge. There seems to be a view that the world is awash with gas and it's free. But shale gas is in very tight rocks. These are complex wells. You need to balance this with the rhetoric that there is lots of it and it's free."
BG also rejects the notion that higher gas supplies would keep prices down. Most gas prices are indexed to oil prices to reflect the higher costs of unconventional production -- including shale gas and liquefied natural gas, said Executive Vice President Martin Houston.
"The idea is that you can enjoy Henry Hub prices for gas going to Yokohama [a Japanese LNG port]...By the time it gets there it's oil indexed," said Chapman.
On the back of growing production in Brazil and U.S. shale prospects, BG has set a target of 6-8% annual production growth through 2020. Around 70% of company profits by 2015 are expected to be generated by oil-related sales as opposed to 50% last year.
Onshore in the United States BG said it plans to participate in 70 new wells in the Haynesville and Marcellus shales.
To 2020 BG and EXCO plan to drill around 675 wells in the Haynesville and Bossier plays, with 80% in Louisiana, said Chapman. The companies now have 125 horizontal wells in operation across the leasehold; initial flow rates were more than 20 MMcf/d, he said. More rigs also are expected to be put into operation by the end of this year.
"We now have around two years of production experience from 90 wells...a fairly extensive data set," he explained. "The well performance has been consistent and provided us with confidence in the sustainability of the play."
Chapman said BG estimates that each Haynesville core well will produce "around 9 Bcf, achieving 40% of total production in the first two years." In the next five years, there should be around 275 wells in the leasehold, he said.
"The economic breakeven gas price is down to $3.20, making projects look very favorable at forward price assumptions," he said of the Haynesville Shale.
The Haynesville marked BG's entry into shale gas, he noted, and "we are now applying it to the less mature but very extensive Marcellus play." BG estimates it obtained 2.9 Tcf of resources in the Appalachian leasehold at an average cost of 40 cents/Mcf.
As of early this year the partners were operating 12 wells with two rigs in the Marcellus Shale, said Chapman. "We'll have five rigs there by the end of 2011.
"It's still early days in the Marcellus. However, this play has the potential to demonstrate core area economics [comparable] to Haynesville acreage."