Friday, August 5, 2011

Musings: Gas Shale Debate May Be Moving to Next Higher Stage

For the past 18-24 months, the debate about the economic performance of the gas shale revolution has been ongoing deep in the industry's trenches. Questions were originally raised by geologist Art Berman about the performance of natural gas shale wells writing in a column in an industry trade magazine, World Oil. The columns bothered certain managements of producers who were totally committed to gas shale developments.

As additional critical columns appeared using acceptable industry data analysis of the results of producing gas shale wells, these unhappy producers voiced their criticism to the publisher of World Oil. The pressure on Mr. Berman to drop the topic increased to the point that he elected to stop writing his column. World Oil's editor also left due to the pressure on Mr. Berman.

In late June, The New York Times published an article based on a number of emails between industry, government and investment professions discussing the latest gas shale data. Those exchanges focused on whether there might be a risk that the abundant volumes of natural gas trapped in the shales would not be developed because the cost of extracting them was actually far in excess of the current or even near term future gas price and that producers were misleading investors about gas shale economics.

If E&P companies were attracting the necessary investor funds to finance their gas shale developments predicated on assumptions that later proved overly optimistic, substantial financial losses could be experienced. Many of the participants in the email chains were long time students of the E&P industry and are aware of the history of producers destroying capital through poor management decisions......Read the entire article.

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