The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Regarding shale gas...

Sadly, I concur with your view that directors frequently don’t know much about the businesses they supposedly oversee. Fortunately, I have the option of selling my shares and am not forced to live with the decisions of bad directors. I pay particular attention to the quality of the Board’s compensation policies (for the company’s executive branch). If they are too liberal or too convoluted, I count that as a significant negative, but not necessarily a deal-breaker.

Your statement that “sophisticated drilling, completion, and production techniques are not necessary for shale gas” goes counter to statements in the Schlumberger white paper you referenced in #msg-41181332. The white paper argues that completion techniques for shale gas requires sophistication. I’m guessing that if one uses unsophisticated completion techniques then the recoverable shale gas will indeed deplete fast (consistent with Sutherlin’s comments).

By the way, I’m not trying to defend Sutherlin or challenge your assessment. I’m just trying to tease out the real-world situation with regard to natural gas supplies. I have two (of five) investments that are impacted significantly by the natural gas situation. JOYG is negatively impacted because they serve the coal industry and natural gas is a major challenger; EXP is positively impacted because their cement and wallboard operations use very large quantities of natural gas; the lower natural gas prices have played a significant role in allowing EXP to remain profitable in these difficult times.

The white paper devotes several pages to the need for sophisticated completion techniques. Some of the major themes are:

Shale gas wells are not hard to drill, but they are difficult to complete. In almost every case, the rock around the wellbore must be hydraulically fractured before the well can produce significant amounts of gas. ....

The natural formation pressure of a large gas shale reservoir will decline only slightly over decades of production. Any pressure drop on individual wells is likely the result of fractures closing up, rather than depletion of the reservoir. The key to good shale gas production over time is having the proper distribution and placement of proppant to keep the fractures open. ....

Many of the new deeper shale gas wells are horizontal, and the cost of fracturing them can be as much as 25 % of the total cost of the well. Operators must determine the payoff for spending the money to fracture more of the reservoir. Fracture jobs are commonly performed in stages. In each stage, operators pump fluid and proppant through the perforation clusters into a portion of the formation. They then set a plug, move up the wellbore, perforate, and repeat the process. Each move is one stage. Ideally, the well should be fractured in as many stages as possible, but the cost would be prohibitive.