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AGA Estimates Domestic Reserves Rose to 18-Year High in 2004

With help from a record number of natural gas wells drilled and completed last year, U.S. producers booked between 24.1 Tcf and 32.7 Tcf of domestic gas reserve additions, bringing domestic reserves up to 190 Tcf for the first time since 1986, the American Gas Association (AGA) estimated in an annual reserves report. However, AGA noted that producers are still struggling to maintain production because of sharp decline rates, smaller yield reservoirs and a focus on unconventional resources.

"For much of 2004, analysts and others...[estimated] that production was falling rapidly (up to 5% or more) compared to prior years. This was probably truer of large gas producers than small independents," the AGA said in its Policy Analysis brief. "During 2004, over 23,000 gas wells were drilled and completed (the highest number of gas completions on record. It is more likely that production was down less than 2% last year.

"Nevertheless, much of the domestic activity was directed to coalbed natural gas and other development drilling, while new exploration targets in higher yield reservoirs have languished. Many reservoirs today are smaller and though they flow rapidly with the assistance of technology, they soon deplete and must be replaced. Therein lies the 'treadmill' that producers find themselves operating on -- running to just stay in place."

Using data from the annual reports of 30 large reserves holders, AGA estimates that 128-174% of domestic production was replaced by reserves. The large and small producers surveyed in the report extracted 18.8 Tcf of natural gas from the estimated inventory of known U.S. reserves in 2004 but more than replaced what was produced. Producers also were encouraged to book more reserves as recoverable because of sustained higher gas prices, AGA noted.

The AGA's examination of domestic reserves focused on the results of 30 large reserves holders, but the association admitted that its examination yielded an incomplete picture of the industry. The 30 companies hold about half the total booked domestic reserves and about half of all production. Moreover, most of the wells drilling last year were not drilled by the 30 top reserves holders, but by other smaller independents. Most of the wells drilled and completed by these independents were in shales, tight sands and coal seams.

The association said that in order for producers to begin targeting higher yield reservoirs again public policy must support exploration in new areas -- "but public policy shifts are slow and uneven."

The AGA's report is intended as a preliminary indication of changes in national reserves inventory prior to the release of the Energy Information Administration's reserves report in the fall. Copies of AGA's Preliminary Findings Concerning 2004 Natural Gas Reserves are available in the subscription-only "Stats and Studies" portion of the AGA website www.aga.org.

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