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Questar CEO: Shift to Unconventional Resources Has 'Profound Implications'

Domestic natural gas supply in the United States is shifting to unconventional resources, but few realize the significant market, political and environmental implications of that shift, said Questar Corp. CEO Keith Rattie in a presentation at GasMart in Denver last Thursday. Drilling shales, coalbeds and tight sands requires many more wells, greater attention to environmental mitigation and $5-7/MMBtu threshold gas prices, he said.

"Today maybe 30% of U.S. gas supply comes from unconventional reservoirs..., and that number is going to grow," Rattie said, noting that Questar is predominantly an unconventional gas producer. However, growing U.S. gas production will be a real challenge with the greater focus on unconventional reservoirs. For production to grow just 1 Bcf/d by 2020, Rattie said producers must drill thousands more wells in each resource play every year for 15 years, and the bottom line is that they will require at least $6.00-6.50 gas prices, potentially even more in some unconventional plays, to cover rising drilling costs, environmental mitigation and other factors.

"The implications of this, as the future of domestic supply, are fairly profound," he said.

A decade ago, 95% of U.S. gas production came from conventional reservoirs, which have high porosity and permeability, require fewer wells to develop, lower initial capital cost, flatter production profiles, high recovery of gas in place (80%), fewer roads and less gathering, and have less surface impact than unconventional reservoirs.

In contrast, unconventional play characteristics include large volumes of gas in place, low porosity and permeability, poor lateral and vertical continuity, more wells, higher costs, low recovery of gas in place (less than 50%), steep first year declines (60%), low production rates that extend for maybe 30-40 years, more roads, more gathering pipelines and more surface impact.

With many unconventional reservoirs, there typically is a significant amount of gas in place. But Rattie said, "it's not about how much gas is in the ground; it's about rate recovery and cost."

Rattie also said that because unconventional drilling requires more wells drilled primarily on public lands, the exploration and production industry must band together to embrace new forms of environmental mitigation. Questar has had to do that in the Pinedale Anticline in southwestern Wyoming. Its drilling plans have cut expected surface disturbance 66% from what was originally projected for development. Through pad drilling it has reduced the surface impact. "We have to go the extra mile on environmental issues," he said.

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