EEA Says Smaller Companies Drive 4Q Production Up
Smaller producers were the driving force behind a 1 Bcf/d increase in
production during the fourth quarter of 2000 over the same period in 1999
according to Arlington, VA-based Energy and Environmental Analysis, Inc.
(EEA). While many large producers reported smaller production results for
the fourth quarter 2000 when compared to 1999, smaller companies were actually
A Lehman Brothers study released earlier this month, which only focused
on larger producers, found that natural gas production was down during
the fourth quarter. The Lehman study revealed that out of 20 of the largest
natural gas producers, which account for about 40% of domestic levels,
production for the fourth quarter 2000 was down 3.7% from the fourth quarter
of 1999 (see NGI, Feb. 5).
Commenting on the Lehman study, EEA Director Kevin Petak said "Generally
our conclusion here at EEA would be that it [the Lehman study] is not necessarily
a representative sample of the United States as a whole. You have to look
at a lot of the smaller producers such as Equitable, Houston Exploration,
Mitchell, Forest Oil and Cabot, where production has in fact been growing,
and they have drilled a lot of wells in the last year. That's the important
thing I think you have to take a look at; there's a differentiation between
what the big companies and what the small companies have been doing over
the last year."
Petak said the large companies are responding as well, but it is just
taking a little more time to ramp up. "While gas production for the
top 10 U.S. producers, which accounts for about 30% of all U.S. production,
appears to have declined from late 1999 through late 2000, on average,
independents and smaller producers are showing significant increases in
gas production," Petak explained. "And total year-over-year production
is actually higher.
"Generally the smaller producers have been much more active in
drilling - in particular onshore the shallower wells, that can be drilled
more quickly, which build deliverability more quickly. Certainly some of
the bigger companies with the larger overhead costs are having difficulty
operating in some of the areas where smaller producers have been most active."
With production levels moving up, and about a 40% increase in drilling
rigs in the ground over last year's level for the same time period, according
to Baker Hughes, the EEA said that natural gas prices by early summer could
drop drastically, approaching the $4 per MMBtu mark. "With continued
increase in productive capacity, gas prices could decline substantially
and re-couple with residual oil prices by early summer," said Petak.
In the EEA's February Monthly Gas Update, the company said the increasing
productive capacity supplying price sensitive customers that had foregone
gas in December was the primary reason for price moderation. However, the
firm cautions that weather over the next two months will be crucial for
gas prices for the remainder of the year.
"Much colder than normal weather for the remainder of this winter
could push gas prices up in February and March and further deplete storage,
creating the need for more storage refill that would keep prices high throughout
the year. There are still two months of winter left, and U.S. gas storage
is currently about 1.1 Tcf, which is uncomfortably low given the tightness
of gas supply and demand," Petak said. "In any case, with continuation
of high drilling activity, productive capacity will continue to rise this