Higher initial production (IP) rates from unique natural gas resource plays like the Barnett Shale have, at the very least, temporarily overcome the long-term trend of declining U.S. gas well productivity and could strengthen core supply for another two years, according to research by Raymond James & Associates Inc.

In the past decade, the United States has experienced a 12% historic average annual decline in first-year gas well production rates, which is "remarkable and clear evidence of declining reservoir quality and gas prospects domestically," wrote analysts J. Marshall Adkins, John Freeman and Cory Garcia. The declining well output, they said, helped propel the rise in U.S. gas prices from $2/Mcf in 1997 to current prices. And rising gas prices also allowed producers to ramp up activity in higher-cost, lower-return areas that had historically been uneconomical at lower gas prices.

However, all of that wisdom is out the window, as U.S. gas production continues to grow -- evidenced by data compiled by independent energy analysts and the Energy Information Administration (see NGI, Nov. 19; Nov. 12).

To determine why U.S. gas well initial production (IP) rates have changed, Adkins and company looked at the gas-rich Barnett Shale in North Texas. After sifting through and compiling state-filed well data for more than 1,000 drilling locations in the core area of the field, the analysts said two things specifically in the Barnett make this play "remarkable" in today's gas world:

"Over the past two and a half years, initial well productivity in the Barnett has climbed an astounding 63%, highlighted by an over 25% sequential increase in the first half of 2007," wrote the analysts. "This is a very unusual phenomenon. In most fields, the first 10% to 20% of the wells drilled are the most prolific since they are encountering mostly virgin reservoir pressures. As more infill wells are drilled, the reservoir pressures and IP rates usually decline. With advanced seismic, horizontal drilling and fracturing technologies, the Barnett has become a very unique difference maker."

The Texas play is unique, but in relation to total gas production, the Raymond James analysts also discovered that since the beginning of 2001, drilling activity in the Barnett has increased "massively, with an astounding nine-fold ramp-up in gas rig count. This has driven a seven-fold increase in production, surpassing 2 Bcf/d (4% of total U.S. production) in 2Q2007."

The amount may not appear like a lot on the surface, but "consider that nearly 15% of all U.S. gas-directed drilling activity is currently focused on the Barnett Shale," the analysts said. The growing Barnett activity "is enough to move the needle on overall U.S. production. This analysis becomes even more significant to core U.S. supply once extrapolated to the other resource plays, such as the Fayetteville, Woodford and some Rockies plays."

And this productivity uptick "may not be the one-year phenomenon observed in the past," wrote the analysts. "The continued ramp-up in drilling activity within the Barnett and other resource plays will likely keep productivity increasing in 2008, driving production levels higher and providing another bearish factor for the U.S. gas equation next year. In fact, based on the production ramp-up anticipated in the Barnett alone -- with one of the most active drillers in the play forecasting roughly 2.5-fold growth by 2012 -- we could continue to see growth in core U.S. supply through 2009."

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