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Analyst Predicts Strong Reserves Addition Report

Analyst Predicts Strong Reserves Addition Report

A veteran natural gas reserve and production expert has issued a bearish warning to natural gas market observers: 1998 total reserve additions could jump as much as 3 Tcf from 1997's figure to between 22 and 23 Tcf. That would be well above the range of 14.9 to 20.2 Tcf over the last nine years. With 1998 production estimated at about 19 Tcf the forecast adds up to reserve additions exceeding production by 116% to 121%.

Henry R. Linden, former head of the Gas Research Institute and currently director of the Energy & Power Center at Illinois Institute of Technology, said he realizes "such a prediction is risky so close to the release of official data by the Energy Information Administration." EIA's annual report, usually published in September, now appears headed for release in early November.

Linden bases his calculations on active gas rigs, gas rig productivity and gas well completions. "The average active gas rig count in 1998 was 560 --- only four less than the count in 1997 when we replaced 104% of reserves. The reason is that the drilling slump hit U.S. gas exploration and development activity relatively late in 1998, in contrast with the collapse in oil drilling activity." While working oil rigs went from 380 to 155 by the end of 1998, the count of gas rigs in service remained high, between 549 and 609 through September, and dropped only to 491 by the end of 1998.

"Unlike the oil rig count, it has now fully recovered to close to 600 according to Baker Hughes, Inc.," Linden said. "In addition, gas rig productivity remained at a relatively high 21.6 wells/rig in 1998 and the number of gas well completions was 12,106 - the highest since 1985."

Multiplying completions by the 1.9 Bcf of average additions per well between 1990 and 1997 results in about 23 Tcf. With per well additions at the 1997 level of 1.8 Bcf the total comes to 22 Tcf.

"Even with a substantial margin for error, this would be adequate to replace 1998 dry gas production of about 19 Tcf."

Earlier this year the American Gas Association (AGA) said 1998 reserve additions could come in anywhere between 84% and 117% of the 19 Tcf of production. AGA's estimates are based on the top-30 reserve holders. The wide range is because it is not known if those top-30 companies, which added 7.8 Tcf, represent 35% or as much as 49% of the market. Chris McGill, AGA's director of gas supply and transportation, said he personally expected reserve numbers to come in closer to the lower end of the range.

"I wouldn't expect reserve replacement to be far above production," McGill said. He also noted that reserve additions have outpaced production for the last four years, chalking up 19.7 Tcf or 108% of production in 1994; 19.3 Tcf (107%) in 1995; 20.2 Tcf (107%) in 1996 and 20 Tcf (104%) in 1997.

Whatever the 1998 reserve numbers are, they won't necessarily have an impact on current production. "There's a disconnect between reserve additions and production," McGill said, because for a variety of reasons production usually doesn't come on line immediately. Another reason for believing reserve totals may be lower: "the industry is different [today]. They operate more on a 'just in time' basis. There's no reason to build up large reserves."

Ellen Beswick

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