Sunday, July 31, 2011

U.S. Shale Gas: Less Abundance, Higher Cost


SEE THE FULL POST ON THE OIL DRUM:

http://www.theoildrum.com/node/8212

Arthur E. Berman and Lynn F. Pittinger

Lynn Pittinger is a consultant in petroleum engineering with 30 years of industry experience. He managed economic and engineering evaluations for Unocal and Occidental Oil & Gas, and has been an independent consultant since 2008. He has collaborated with Berman on all shale play evaluation projects since 2009.

Introduction

Shale gas has become an important and permanent feature of U.S. energy supply. Daily production has increased from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011.

There are, however, two major concerns at the center of the shale gas revolution:

• Despite impressive production growth, it is not yet clear that these plays are commercial at current prices because of the high capital costs of land and drilling and completion.

• Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.

These are not purely technical topics for debate among petroleum professionals. The marketing of the shale gas phenomenon has been so effective that important policy and strategic decisions are being made based on as yet unproven assumptions about the abundance and low cost of these plays. The “Pickens Plan” seeks to get congressional approval for natural gas subsidies that might eventually lead to conversion of large parts of our vehicle fleet to run on natural gas. Similarly, companies have gotten permits from the government to transform liquefied natural gas import terminals into export facilities that would commit the U.S. to decades of large, fixed export volumes. This might commit the U.S. to decades of natural gas exports at fixed prices in the face of scarcity and increasing prices in the domestic market. If reserves are less and cost is more than many assume, these could be disastrous decisions.

Executive Summary

Our analysis indicates that industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied.

The Barnett and Fayetteville shale plays have the most complete history of production and thus provide the best available analogues for shale gas plays with less complete histories. We recognize that all shale plays are different but, until more production history is available, the best assumption is that newer plays will develop along similar lines to these older plays. There is now far too much data in Barnett and Fayetteville to continue use of strong hyperbolic flattening decline models with b coefficients greater than 1.0.

Type curves that are commonly used to support strong hyperbolic flattening are misleading because they incorporate survivorship bias and rate increases from re-stimulations that require additional capital investment. Comparison of individual and group decline-curve analysis indicates that group or type-curve methods substantially over-estimate recoverable reserves.

Results to date in the Haynesville Shale play are disappointing, and will substantially underperform industry claims. In fact, it is difficult to understand how companies justify 125 rigs drilling in a play that has not yet demonstrated commercial viability at present reserve projections until gas prices exceed $8.68 per mmBu.

SEE THE FULL POST ON THE OIL DRUM:

http://www.theoildrum.com/node/8212

Sunday, July 24, 2011

Interview on Platts Energy Week TV

Arthur Berman, Houston-based Geoscientist, discusses a recent story featured in the NY Times that called into question whether the shale boom was akin to a ponzi scheme.
http://www.plattsenergyweektv.com/video/default.aspx#/Platts+Energy+Week%2DAlt/07.24.11+Latest+Controversy+Over+Shale+Exploration/78974462001/748923961001/1070933193001

Sunday, July 17, 2011

National Legal and Policy Center Lacks Courtesy to Respond

On July 7, 2011, The National Legal and Policy Center's (NLPC) Chairman Kenneth Boehm published untrue and unsubstantiated statements about me. On July 12, I responded with demands for corrections that were published on this blog: http://petroleumtruthreport.blogspot.com/2011/07/smear-campaign-continues.html.

A week later, the NLPC has not shown the professional courtesy to respond to my request. I leave it to my readers to decide what this means about the NLPC.

Tuesday, July 12, 2011

The Smear Campaign Continues

Today, Mr. Kenneth Boehm, Chairman of the National Legal and Policy Center, wrote an e-mail to Arthur Brisbane,The New York Times Public Editor, in which he made false and unsubstantiated statements about my professional work and conduct:

http://nlpc.org/stories/2011/07/07/ny-times-asked-investigate-shale-gas-bubble-series

Mr. Boehm,

I demand a public correction and apology for the unethical, un-researched and un-investigated statements that you made about my professional activities and positions in your e-mail to Arthur Brisbane, Public Editor of The New York Times, and that are now reproduced on the NLPC website.

"Arthur Berman makes his living providing investment advice based upon his own position as a shale gas critic."


Your reference is to a news report on a technical talk that I gave pro bono two years ago that in no way supports your claim that I make my living providing investment advice.

In fact, I do not.

I am a petroleum geologist and have spent all of my thirty-three year career making maps, interpreting subsurface data, evaluating drilling prospects and advising clients on the technical risks of petroleum systems. I am a licensed geoscientist in the State of Texas and have held numerous unpaid positions as an officer in professional geological societies.

I have no experience as a financial advisor and have never given any client investment advice as you claim.

I have no position as a shale gas critic. I evaluate a broad spectrum of oil and gas opportunities in my work and have no bias toward any of them. If the petroleum system risk, reserve, rates and economics of a prospect or play do not meet threshold criteria, I provide this interpretation.

The fact that shale gas plays fail to meet these standard criteria does not make me a shale gas critic but, rather, an honest broker of objective data.

"The truth is that Mr. Berman is a very lonely proponent of this view. As much as he has tried for over three years, he has garnered virtually no scientific support."

Your reference is to a technical report that I published in World Oil, a respected industry journal (re-printed on my blog) that it no way supports your comments.

I suggest that you poll the thousands of technical professionals in the oil and gas business who have filled my invited pro bono technical presentations at professional societies all over the country for many years. Any rudimentary research would reveal that my publications and public lectures cover a spectrum of petroleum subjects of which shale gas is only part. Perhaps you should poll my many clients about the degree to which they find scientific merit in my work.

"In these emails, Mr. Berman appears to be corresponding with, among others, investors who missed out on the boom in shale gas and stand to gain, financially, from a devaluation of the natural gas industry."

You provide no reference for this ridiculous statement so it is obviously nothing more than unethical conjecture to support a bias that you appear eager to forward.

"Mr. Berman offers his views regularly to media outlets which service the investment community, consistently espousing views supportive of short sellers."

Your reference is to a blog by someone who I have never heard of who apparently heard a presentation that I made and summarized my conclusions. I never gave this person an interview and have no idea about his business. Your reference does not support your specious speculation.

I have no interest in or knowledge of short sellers. My business is geology not finance. I have never taken a short position and, frankly, would have to ask how to do it.

I called you today to discuss these and other matters but, since you did not give me the courtesy of a return call, I must write my comments.

Your written comments to Mr. Brisbane are in direct violation of the NLPC's stated purpose:

"NLPC promotes ethics in public life through research, investigation, education and legal action."

Your statements reflect a profound lack of ethics, research or investigation.

I have no interest in defending or otherwise taking the side of The New York Times about its article on shale gas. I do have deep interest in preventing people from making false and damaging statements about me while pursuing some agenda also outside of my interest.

I look forward to a swift rectification of your incorrect and unsubstantiated statements.

Sincerely,

Arthur E. Berman

Saturday, July 9, 2011

The Smear Campaign to Distract From the Truth That Shale Plays Are Commercial Failures

There is a carefully organized smear campaign orchestrated by powerful corporate interests (http://nlpc.org/stories/2011/07/07/ny-times-asked-investigate-shale-gas-bubble-series) to distract from my central argument that the shale gas plays are commercial failures.

I have a clean conscience about all of this and am willing to discuss it with anyone.

I told no one beyond my closest circle of family and friends about the upcoming New York Times article and I did not make any investments, nor did any of my clients or friends, make any investments that I know about based on the timing of its publication.

I was not shown any advance versions of the article and read it for the first time late Saturday, June 25 when it was published online.

I have no active investments in stock and have not for several months. Most of my investments are in REITs, bonds, or commodity funds.

Anyone who thinks that e-mails are confidential only needs to pay attention to the international news (WikiLeaks or any number of discovery cases) to realize that everyone should be careful about what is put in e-mail communications. I am not pleased about how the New York Times published e-mails that supposedly came through me, but I also think that those who believe that this kind of communication is secret and confidential must wake up to the real world.

I will fight the claims of wrong doing to the extent that this is productive, and believe that my record speaks for itself.

The real issue here is the truth about the economics and conduct of shale plays by the independent E&P companies.

All of the media innuendo is calculated to distract from the truth that the shale plays to date are non-commercial and that the companies involved have not been truthful about this.

Wednesday, July 6, 2011

Jon Entine forced to re-write his post, "Natural Gas "Bubble" Report: Market Tinkering or Shoddy Reporting?"

Because of my objections, RealClear Politics forced Jon Entine to "update" his post, "Natural Gas "Bubble" Report: Market Tinkering or Shoddy Reporting?"

http://www.realclearpolitics.com/articles/2011/07/01/natural_gas_bubble_report_market_tinkering_or_shoddy_reporting.html

Entine's post remains objectionable because it relies on unsubstantiated speculation rather than evidence or data.

It is indeed curious and ironic that one of Entine's recent articles is titled, "When Science is Unfavorable, Attack the Scientist."

What do you think that you just did, Jon?

Monday, July 4, 2011

Letter to George Mason University re: Jon Entine's post-Natural Gas "Bubble" Report: Market Tinkering or Shoddy Reporting?

Dear Sir or Madam,

Jon Entine has posted an article called "Natural Gas "Bubble" Report: Market Tinkering or Shoddy Reporting?"(http://www.realclearpolitics.com/articles/2011/07/01/natural_gas_bubble_report_market_tinkering_or_shoddy_reporting.html) in which he represents himself as a staff member and representative of George Mason University. At the end of his post he identifies himself as "directing the Genetic Literacy Project and as a senior fellow at STATS and the Center for Health and Risk Communications at George Mason University."

His post contains errors, exaggerations and untrue statements that cannot be substantiated, and thereby jeopardize George Mason University's legal position and reputation as an honest broker of information.

I demand that Mr. Entine post public corrections to the many incorrect and unsubstantiated claims that he makes in this post. I further request that he write to me directly acknowledging that his post contained the many incorrect and undocumented claims that I specify below. He never contacted me or my clients to verify these claims and, apparently, did no research to document his many specious allegations.

My work with Indiana Gasification (IG) as an expert witness is a common and legitimate role for experienced oil and gas experts. I demand that he state in his correction that there is nothing unusual about my relationship as a paid expert witness for IG or any other entity.

I demand that he correct the statement that my testimony was about "buying natural gas made from coal instead of hydraulic fracturing." My written and oral testimony is on public record for anyone to read. I did not discuss coal or hydraulic fracturing in my written or oral testimony before the Indiana Electric Utility Commission (IEUC). My testimony was about natural gas supply, demand and price expectations. I demand that he explains in his correction that my testimony contained no statements about "buying natural gas made from coal instead of hydraulic fracturing."

His statement, "The coal industry fears getting crushed by the cleaner, natural gas movement, and Berman backed coal" is speculation by him, and does not reflect testimony that I gave to the IEUC.

I did not make this statement and did not comment in my written or oral testimony about the concerns of the coal industry concerning natural gas. I did not "back coal" and I demand that he corrects this mis-representation. I demand that he states in his correction that my testimony contained no statements that "The coal industry fears getting crushed by the cleaner, natural gas movement, and Berman backed coal."

Mr. Entine writes that I have a direct conflict of interest with Middlefield Capital in Toronto, and claims that I am compensated as a shale gas skeptic. My role with The Middlefield Group (Middlefield) is founded in a contract to conduct client presentations as well as television, newspaper and other media interviews that provide my analysis of oil and gas supply, demand and price trends.

My contractual relationship with Middlefield involves a quarterly retainer payment, and I receive no compensation other than this. I receive no direction from Middlefield on the topics of my quarterly presentations, and have never featured an "anti-shale gas investment outlook" in my association with Middlefield and its clients.

I demand that he corrects the statement "Berman not only has an indirect financial interest playing the role of shale gas skeptic, he has a direct conflict of interest."

I demand that he explains in his correction that I have no financial interest playing the role of a shale gas skeptic in my relationship with Middlefield. I demand that he explains in his correction that I have no direct or indirect conflict of interest in my relationship with Middlefield.

I demand that he explains in his correction that I receive no compensation from Middlefield other than a fixed quarterly fee, and that I receive no direction from Middlefield on the subjects of my quarterly presentations to their clients.

He states that "Berman is reportedly also a consultant and paid speaker with the Canadian Imperial Bank of Commerce (CIBC)."

I gave a paid talk in July 2010 for CIBC and have no other business relationship with that organization. I demand that he corrects the statement that "Berman is reportedly also a consultant and paid speaker with the Canadian Imperial Bank of Commerce." I demand that he explains in his correction that I have no business relationship with CIBC beyond the paid presentation that I made in July 2010.

He states that "Moreover, if any of their clients, or indeed the fund managers at Middlefield, knew that the Times story was coming out, they could face charges of market manipulation under Canadian and U.S. securities law." I never told Middlefield or any other entity that the New York Times article was going to be published. I did not have advanced access to the New York Times article and did not read the article until its publication on June 26, 2011 when I bought a copy of the newspaper.

I demand that in his correction he explains that I did not tell Middlefield or any other entity that the New York Times article was going to be published. I further demand that he explains in his correction that I or Middlefield do not face charges of market manipulation under Canadian and U.S. securities law.

He wrote "Did Berman tell his strategic partners and clients, and directly profit from the Times story? Did Middlefield's funds or clients or CIBC's clients with knowledge of the Times’ piece hold short interest in shale stocks or long interest in competitors' stocks? Did the Canadian oil sands industry, which includes Middlefield Capital, seek to influence the U.S. fracking debate, which could be a potential violation of the Foreign Agents Registration Act? Did Middlefield's funds or clients or CIBC's clients have short interest in shale stocks ahead of the Times report? Is the Times' key source dealing in inside information?"

I demand that he corrects the statement implying that I profited from the New York Times article. I have not. I demand that he explains in his correction that I did not tell my clients about the New York Times article. I demand that he explains in his correction that neither my partners, clients nor I profited from the New York Times story. I demand that he explains in his correction that I had no knowledge of any clients' interests in stock positions. I demand that he explains in his correction that I gave no advice about oil sands or any other investment to any client.

I demand that he correct the statement that states that I gave Middlefield's fund or clients or CIBC or CIBC's clients information that resulted in them taking short positions with knowledge of the New York Times article since I did not tell them about the New York Times article, and am unaware of any positions that Middlefield or CIBC have, and have had no contact with CIBC in this regard since my paid presentation one year ago.

I demand that in his correction that he explains that I did not give Middlefield any information about any position that they may have on any investment based on any statement that I made about the New York Times article.

I demand that he corrects the incorrect statement that I influenced Middlefield on the Canadian oil sands industry or the U.S. "fracking debate."

I demand that he explains in his correction that I gave no information or advice to Middlefield about Canadian oil sands or hydraulic fracturing although, as a general case, providing advice for a fee as an energy expert is appropriate and legitimate.

I look forward to the publication of these corrections and explanations.


All the best,


Arthur E. Berman