EOG Chairman Sees 1999 Production Falling Short
Storage overhang isn't enough to temper the optimism of Enron
Oil & Gas Chairman Forrest Hoglund when it comes to the outlook
for gas this year and next. With demand expected to grow and
production expected to fall - 3% according to Hoglund - on soft
drilling activity, the coming months are shaping up to be good ones
"We think gas demand is going to grow as the year goes ahead in
1999, so we think you're going to see some upward pressure on gas
prices, and we think you're seeing it in the market already in
anticipation of what is going to come," Hoglund told attendees last
week at the Ziff Energy North American Gas Strategies Conference in
Hoglund pointed out dry gas production has been essentially flat
since 1994: 18.8 Tcf in 1994, hitting a low of 18.6 Tcf in 1995 and
a high of 19 Tcf last year. The static supply was contrary to the
expectations of many who were watching rig activity climb during
the period, Hoglund said. In his view the factors that support a
strong price outlook include record low rig counts, high and
climbing decline rates, and the fact that the late 1990s have seen
no significant new domestic gas plays as were seen in 1993 and
1995, save for the deep-water-inspired Gulf of Mexico renaissance.
Production shortfalls due to declining drilling rates will be
showing up in the coming months, Hoglund said. Compounding the
anticipated crimp in supply will be high decline rates. For the
United States overall, decline rates have grown from about 14% in
1990 to 23% in 1997. The same decline rate (23%) is estimated for
1998, 1999 and 2000, Hoglund said. Onshore alone, decline rates
have grown from 12% in 1990 to 19% in 1997 and are expected to
remain at 19% through 2000. The Gulf of Mexico Shelf has been hit
with the highest decline rates, but other regions, such as Texas,
Louisiana and Alabama, have been hit hard, too. The 1997 decline
rate for the Gulf of Mexico Shelf was 41%, according to Hoglund.
The deep-water figure in 1997 stood at 28%. These are up from 21%
and 13%, respectively, in 1990.
"Any kind of economic studies you run show the economics have
been pretty tough out there [on the Shelf]. You're just not finding
the bigger reserves anymore, and I think we're going to see the
Shelf continue to decline on down.
"Deep-water has come on nicely but it's got the same kind of
situation that has to be overcome because we're also talking about
high decline rates in the deep-water. They started out lower as the
fields were really flush, 13, 14%, but now they're up in the 28%
range, not as high as the Shelf, but certainly you've got to add a
lot of new fields coming on just to take care of the decline each
year in the existing base that you have out there. We certainly
expect the deep-water to continue to grow. We're not saying we
think it's going to decline in total. And I just think it's going
to have to do very well just to offset what we're going to end up
seeing out in the Shelf."
Further, Hoglund said production levels used to peak in the
winter and drop off in the summer. The winter peaks aren't there
anymore. "And they aren't there for a reason. Those wells have to
be on all year long, steady, for us to be able to meet the demand.
That's the only way we've been able to do it. When you do that you
pull the wells harder; you get a higher decline rate." Thank
technological advances for the fact the industry isn't adding that
much in reserves per well but is still finding ways to deplete
those reserves more quickly.
"Our estimate of what it takes to keep production flat in the
United States is 577 gas rigs running. The current gas rig count is
about 362, and when we look at year-end '99 deliverability we look
at an average of 400 rigs running [346 onshore, 54 offshore] in
this particular year, and if that happens, we think you'll see a 3
Bcf/d decline in the natural gas capability in production by
year-end in 1999, which would be somewhere around 5% of the total.
I've seen a lot of other forecasts in the 2% to 4% range. Most
people now think with the low level of drilling it is coming down.
But if you just do the numbers and play with decline rates steady,
not increasing anymore, and 400 rigs, these are the kind of numbers
that end up coming out: 3 Bcf/d down by the end of the year."
Joe Fisher, Houston