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Producer Casts Cold Water on 30 Tcf Market

Producer Casts Cold Water on 30 Tcf Market

While U.S. natural gas resources appear virtually unlimited, that doesn't necessarily mean the industry can ramp up production to meet the oft-heralded 30 Tcf a year market projected to develop over the next 15 to 20 years, according to a Chevron U.S.A. exploration manager.

The majors no longer operate in the Lower 48 onshore, Andrew L. Hardiman told an OCS Policy Committee meeting Thursday, and there's a reason for that. Chevron was the last major to leave the lower 48 onshore because the returns did not justify the expense of deep drilling, plus the limited access and the time involved in permitting. These factors "will have an impact on how fast the resources will be available," Hardiman said.

While the majors do still operate in the offshore, he questioned whether production could be ramped up to meet the 30 Tcf timetable. Better technology did have an impact over the last 12 years, and drilling and the number of wells have increased production from 45 Bcf/d in 1987 to between 51 and 52 Bcf/d from 1995 on. Despite all that "over the last four to five years production shows an awfully flat curve."

Ideally, gains in the deep-water production would add to a steady, shallow-water production rate, but that has not been the case. A large percentage of production is from wells drilled in the last two to three years, which argues for a high rate of production decline - a 40% decline if nothing is done, Hardiman said. With workovers or completions in new zones the decline rate can be cut to 25-30%. Adding in new wells can cut the decline rate to 5-6%. "The best opportunity we've got is to capitalize performance on the Gulf of Mexico Shelf," the Chevron representative suggested.

He pointed out, however, that in the last five years the cost of drilling new wells has nearly doubled from $2.60 per barrel of oil equivalent to $5.10 . "The quality of the investment has been cut in half over the last four or five years. The question is how long is the industry going to continue to invest to get that decline rate down to 5-6%."

Hardiman also questioned optimistic projections for the deep water drilling, pointing out that province is driven by oil production. While the shelf is gas with associated oil, the reverse is true in deep water where about 70% of the production is oil. He questioned projections that put gas production at between 4 and 5 Mcf per barrel of oil, saying some of the larger deep water discoveries are more like 1 Mcf per barrel. And "you've got to get the oil out first."

The Chevron exploration manager said he believed 1% production growth per year "is very doable." He was skeptical there could be the 2-3% annual growth needed to support a 30 Tcf market by 2015 as projected by a number of analysts because of "the quality of the investments, the size of the pools, and the deliverability - how fast we can get it to market."

The producer's testimony came during a two day conference in Arlington, VA, of the OCS Policy Committee, which is composed of representatives of the Minerals Management Service and state officials who oversee resource management, along with industry representatives.

In an earlier presentation, the director of the Potential Gas Agency, which assesses reserves, described a reserve base in the U.S. that appears virtually limitless. He was careful to note, however, that his was a geological assessment which did not include costs or prices or attempt to measure potential deliverability.

Ellen Beswick

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