Reply #27: It's all about net energy, baby. [View All]

So, we have to drill 2-3 wells to get the initial productivity of a well that was drilled back in 1996. And you can see it in the overall drilling rates. In 1996, we drilled 4,000 successful gas wells. The price of gas spiked in 2001 - we drilled 11,000 gas wells. We've had about a 10% increase in productivity by drilling three times as many wells. 2003: even though we drilled 14,000 wells, gas production fell by about 3%. So, it basically hit a peak in 2001, maintained that plateau till mid-2002, declined 3% in 2003. We're now drilling nearly 16,000 gas wells per year, as of 2005, and production is about what it was back in 2002. Companies are talking about trimming their exploration budgets, which will play out as steeper declines in productivity. The other thing that's happening is coal bed methane. Particularly in Central Alberta, it's making up a larger and larger proportion of supply for very low productivity wells - 100 Mcf/day instead of, probably, a little over 250 Mcf/day for an average conventional well. So, we have to drill 2-3 coal bed methane wells to equal one existing conventional well. So, the writing's on the wall. We have to drill more and more wells each year - hopefully to stay flat - but, eventually, even to hold declines, to relatively small, incremental levels.