The Popping of the Shale Gas Bubble

There are a couple of reasons for this conundrum.  First, due to the way oil and gas leases are structured, a well must be drilled within the first three years (sometimes five years) of the lease signing for the lease to continue in good standing.  Once a well is drilled, even if the well is not immediately connected to a pipeline system, the operator can produce oil and gas from the lease indefinitely.  Therefore, given that billions of dollars were spent leasing Marcellus acreage over the past six years, a drilling boom naturally followed.  However, due to lack of pipeline availability, many Marcellus wells sat idle for years.   Similar to the early years of Barnett and Haynesville development, Marcellus producers have been able to show consistent production growth as new wells are put on production, along with previously drilled wells in inventory, while simultaneously reducing their rig count.   Increasing production through normal drilling and the tie-in of previously drilled wells while reducing drilling activity creates the illusion of large efficiency gains.   Unfortunately, once the inventory of uncompleted Marcellus wells is depleted, which should occur in the first half of next year depending on the in-service dates of several pipelines, peak production is soon to follow given the high decline rates seen in Marcellus wells and the current level of drilling activity.

via The Popping of the Shale Gas Bubble.