Americas: Gas output may rise with capital shift to high BTU plays: Bentek

p>Natural gas production in the US could stay the same or even rise despite hefty capital spending that exploration and production companies plan to shift away from pure gas drilling, a top industry researcher said Thursday. That is because the money will go into liquids-rich plays that contain sizable volumes of natural gas liquids or oil that contains associated gas, Rusty Braziel, managing director of industry consultants Bentek Energy said at a National Energy Services Association energy forum. "Some companies could sell their liquids and give the gas away for free and still make money," Braziel said. He noted Chesapeake Energy, for example, recently said it will adjust capex on liquids-rich plays from 10% in 2009 to 32% this year and 55% in 2012.

Devon Energy and Petrohawk Energy are similarly have said they plan to spend more on plays that contain a larger percentage of liquids. Shale player Petrohawk Energy has estimated its rate of return in the largely dry-gas Haynesville Shale in East Texas and northwest Louisiana is around 25% at a $4/Mcf gas price, said Braziel.

In the Eagle Ford Shale, located in South Texas and which Petrohawk pioneered, there are several separate "windows" that respectively contain mostly dry gas, moderate amounts of natural gas liquids and large NGL volumes.

In a moderately "wet" area there, Petrohawk's rate of return is around 50% at a $4/Mcf gas price, while in a very "wet" area it is 200% at the same gas price; the return rate is "off the charts" if the price of gas climbs from there, said Braziel. He noted the drier areas of the Eagle Ford are located to the south of the play, while liquids contents increase going north with the wettest parts in the play's northern tier. "The average producer in the Eagle Ford can make money at $2.04/Mcf," he said. "So $4/Mcf prices are good news." When oil companies allocate more dollars into the high-BTU gas plays, they drill wells they wouldn't otherwise be drilling, he added. If they drill oil wells, associated gas comes with the oil.

"When you combine the associated gas with increased BTU drilling, that may be enough to keep natural gas production flat or continue to increase even though dollars are being allocated to liquids drilling," said Braziel.

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