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Marcellus shale legacy wells showing increasing depletion rates

The EIA's latest report shows growing shale gas production losses
The EIA's latest report shows growing shale gas production lossesWith permission from the Energy Information Agency

In its latest April/May 2014 shale gas productivity report, the Energy Information Agency’s (EIA) now projects the Marcellus shale formation will lose an estimated 352 million cubic feet per day (Mmcf/d) of shale gas production from legacy wells for May 2014. The EIA report shows well productivity daily losses increasing from 200 Mmcf/d since May 2013. The agency estimates a gain in production from new or recently connected Marcellus shale gas wells of 605 Mmcf/d but only a net gain of 256 Mmcf/d after production losses from legacy wells. Total daily shale gas production in the Marcellus is estimated by the EIA to reach 14,772 MMcf/d for May 2014; a slight increase above April 2014’s projected 14,520 MMcf/d. The agency estimates new well productivity is coming from roughly 140 new rigs working the formation.

The report, issued and updated every month and found at http://www.eia.gov/naturalgas/, estimates a net gain in Marcellus production for May 2014 of 253 million cubic feet per day. The EIA’s Samuel Gorgan, when contacted by Examiner.com stated, “The legacy production decline is generally driven by the natural decline of the wells in the region. I think of it as, if no new wells started producing this month, total production in the region would decline naturally by that amount. Of course the actual change can either end up significantly lower or higher based on operational issues.” The EIA’s Gorgan did not define what such “operational issues” affecting Marcellus shale gas production might be.

The Marcellus productivity losses follow the continuing trend of prior EIA reports. The EIA’s March report showed an average Marcellus formation loss rate of 320 million cubic feet per day. Production losses have more than double since late 2012 when they averaged around 160 million cubic feet per day. When asked how the Marcellus productivity rates compare to the Texas Barnett shale formation, the second largest shale gas field in the U.S., the EIA’s Gorgan responded, “We don’t currently have plans to publish analysis of the Barnett. We’re primarily interested in publishing analysis of the fastest growing and most commercially important plays ….”

Energy analyst, Moshe Ben-Reuven, recently published an extensive analysis on Marcellus shale production rates in part based on available EIA data. He concludes while the Marcellus has produced impressive amounts of shale gas, he believes, “Marcellus proved reserves, along with production rate, allow projection of life span, which is shown far less than the 100 years, closer to 10 years.” Ben-Reuven also stated he could not find any physics based formulas, only pro formas, for what the oil and gas industry are claiming in regard to long term per well production estimates. Ben-Reuven’s recent analysis can be found at, http://seekingalpha.com/article/2118153-marcellus-shale-through-a-glass-darkly

The Marcellus formation recently became commercially developed in late 2007 and is considered in terms of active production to be one of the newer shale formation plays. Initial estimates of reserves and productivity were purely speculative and primarily driven by in state oil and gas industry paid for front groups. With the formation now having a seven year history of rig counts and actual production and depletion rate data, the EIA is able to estimate trends within the Marcellus formation with growing accuracy. These trend reports are quickly becoming the basis of more independent financial analysis by those outside the oil and gas industry.

The Pennsylvania section of the Marcellus formation has not proven to be a factor in overall U.S. oil production. For the entire year of 2013, the Marcellus in Pennsylvania produced an estimated 350,000 barrels of oil averaging less than 1,000 barrels of oil production per day. The Marcellus formation in total is now averaging less than 3000 new barrels of oil production per day. Depletion rate losses from legacy wells have quickly grown to an average loss of 2000 barrels a day according to the EIA for a net production gain of less than 1000 barrels a day.

As a point of comparison, the U.S. uses roughly 22 million barrels of oil every day. To date, hydraulic fracking technology http://en.wikipedia.org/wiki/Hydraulic_fracturing, has yet to unlock more recoverable oil in Pennsylvania, the state in which Drake first discovered massive amounts of it back in the late 1800s.