For most of this year, natural gas prices have moved counter to almost everyone's expectations falling while crude oil prices have risen dramatically. The conventional explanation has been that natural gas production coming from the newly completed wells in the prolific gas shale formations around the country is much greater than from traditionally located and drilled wells. The unanswered questions are when will this phenomenon of more productive wells coming on stream end and why are producers continuing to drill ANY gas wells in a sub $3 per thousand cubic feet (Mcf) world?
Why are producers continuing to drill ANY gas wells in a sub-$3 per thousand cubic feet (Mcf) world?
Some producers have claimed that they have been scaling back their gas drilling activity lately, despite the recent uptick in gas drilling rigs, but the backlog of drilled but yet to be completed wells is being worked down and that accounts for many of the prolific new wells coming on stream. The answer to why producers are willing to drill and complete wells in today's low gas price world is answered by the strong contango that has prices for natural gas one year into the future selling at nearly $2 per Mcf higher than current fiscal spot prices. The two charts below.....Read the entire article with charts!
