Just a description of the worst case, lp.

The area of NW Lousiana and E. Texas has a tremendous amount of drillable acreage locked up under old gas units producing from shallower horizons so, while there's no deadline to develop those from the Haynesville, it will be a constant influx of gas when prices support doing so.

It was more than I'm usually willing to type but you're more than welcome.

I might have mistaken what you were wondering about, the slowness of the shift to oil drilling, but here's more context to what I said.

Oil and gas leases vary in length of term, royalty, and bonus paid for the lease but they generally follow this rule: the landowner (owner of the minerals, aka: the lessor) assigns the rights to drill for and produce (oil, gas, etc.) in exchange for a set share (royalty) of the production and... a cash payment (bonus) per acre leased. In typical times, when no huge psychosis has swept through and claimed oil men and women as it's own, that cash payment might range from $75 to $200 per acre. The term of the lease would hopefully be for, say 3 years,, with all leases being bought before the first well is drillled, and the first ones probably purchased a year and maybe more before that.

Absent a provision in the lease that provides for a renewal or extenstion of the primary term, the lessee (oil company, speculator, etc.) either drills on the lease and produces from it (thereby holding it by right of production), or the rights revert back to the landowner. Who's probably spent that cash bonus by now, since some three years has most likely passed.

(Though in the three areas I mentioned, our landowner is probably still buying lottery tickets by the sackful since competition for leases was so intense that the cash bonus wasn't $75 to $200: it was up to as much as $15,000 to $20,000.)

So, if you're the MBA that looked at gas prices a number of years back, liked the idea that you were actually buying reserves in the ground (many felt that way, engineers included), and could hardly see for all the money New York was throwing at you, you might have paid around $5,000,000 to put together a 320 acre drilling unit in the Haynesville shale gas play.

Now: imagine you had enough of other peoples money that you decided you were destined for finer things in life and put together enough acreage that you had maybe 300 drilling units, some 100,000 acres in all, and each lease requires you to drill on it (or include it in a unit that you drill on) in a timely fashion. Otherwise, you lose the lease - remember? And gas prices fall from what made the whole scheme an economic one, down to a price that guarantees spending the money to drill the well and hold the leases a money-losing proposition.

Maybe not, though. Maybe it would be prudent to drill your best acreage in the hope that gas prices will rise in time to make the wells economic in the long term, rather than let all that money you spent on leases become a sure loss. And maybe you do the smart thing and go to the state regulatory boards and petition to have the unit spacing increased to 640 acres, instead of 320, thereby holding eventual development acreage along with the well you have to drill.

If you look at it this way, lp, it isn't so much that companies didn't won't to shift to oil exploration, it's more that some of the couldn't leave the gas.

-- Edited by catahoula on Friday 2nd of November 2012 05:55:21 AM

Cat: 

Not understanding your post

Coal is Dead, Long live Gas. 

The economics favors NG. Falling pollution from coal will affect those who are down wind- like a smelly fart and those who are upstream, clueless and smiling.

-- Edited by longprime on Thursday 1st of November 2012 09:47:26 AM

I want to energy independence as much as anyone. BUT it will not happen unless we allow energy to be priced too low for profitable exploration, processing, and distribution. 

A lot of interesting data at the Dept of Energy online. 

Here's a interesting chart. http://blogs.wsj.com/economics/2011/08/27/number-of-the-week-how-many-rigs-are-drilling-for-oil/

Here's one from seekingalpha; http://seekingalpha.com/article/954971-natural-gas-the-tricky-craft-of-counting-drilling-rigs-part-i

Note the drill rig counts for oil and gas. What confounds me, an you all know I am challenged, is that drill companies took until late 2011 to pull rigs from gas to oil exploration. 

Obama Discovers Natural Gas

Another election-year transformation.

A re-election campaign is a terrible thing to waste, and this year's race is already producing miraculous changes at the Obama White House: The latest example of a bear walking on its hind legs is the President's new embrace of . . . natural gas from shale.

 

Last week the White House issued its latest report on jobs and it includes a section on "America's Natural Resource Boom." The report avers that a few years ago there were widespread "fears of a looming natural gas shortage," but that "the discovery of new natural gas reserves, such as the Marcellus Shale, and the development of hydraulic fracturing techniques to extract natural gas from these reserves has led to rapidly growing domestic production and relatively low domestic prices for households and downstream industrial users."

Please pass the smelling salts to Interior Secretary Ken Salazar and Lisa Jackson at the Environmental Protection Agency.

To the best of our knowledge, this is the first time the White House has favorably mentioned the Marcellus Shale, the natural gas reservoir below Pennsylvania, West Virginia and other Northeastern states. And now he's taking credit for this soaring production.

 

As the White House report puts it: "Of the major fossil fuels, natural gas is the cleanest and least carbon‐intensive for electric power generation. By keeping domestic energy costs relatively low, this resource also supports energy intensive manufacturing in the United States. In fact, companies like Dow Chemical and Westlake Chemical have announced intentions to make major investments in new facilities over the next several years."

And that's not all: "In addition, firms that provide equipment for shale gas production have announced major investments in the U.S., including Vallourec's $650 million plant for steel pipes in Ohio. An abundant local supply will translate into relatively low costs for the industries that use natural gas as an input. Expansion in these industries, including industrial chemicals and fertilizers, will boost investment and exports in the coming years, generating new jobs."

We checked to see if someone slipped a press release from the Natural Gas Council into the White House report by mistake, but apparently not.

 

The report does add the obligatory disclaimer about hydraulic fracturing that "appropriate care must to be taken to ensure that America's natural resources are extracted in a safe and environmentally responsible manner" with safeguards "to protect public health and safety." But no one disagrees with that.

The catch is that this endorsement runs against every energy policy pursued by the Obama Administration for three years. The Institute for Energy Research reports that royalties from oil and gas drilling have fallen more than 90% since 2008 because of Interior Department permitting delays and rejections.

 

The EPA recently issued a flawed report on groundwater contamination that could shut down the fracking process the President is now touting as a jobs producer. EPA's political goal is to grab power to supercede state drilling regulation. The industry regards new EPA authority as a real threat to its future.

Each year Mr. Obama has also supported a $40 billion tax hike on the oil and gas industry because, as he put it in 2009, the tax code "encourages overproduction of oil and gas" and "is detrimental to long-term energy security." Even the Securities and Exchange Commission has imposed extensive new reporting requirements on oil and gas fracking companies.

It's certainly smart politics for Mr. Obama to distance himself from the anti-fossil fuels obsessives, and no doubt his political advisers are hoping it helps this fall in the likes of Ohio and Pennsylvania. On the other hand, this could be a one-year wonder, and if he wins Mr. Obama might revert to form in 2013. A good test of his sincerity would be to replace Ms. Jackson and Mr. Salazar.

 

http://online.wsj.com/article/SB10001424052970204542404577159451962332684.html

I'm sure most of the trade growth is outside of the US.

Then again, these guys are both saying what they think it takes to get elected.
Do you feel more comfortable that Obama is pro trade and pro business than Romney?

"His stance on China besides his comments about Chrysler are all bark and no bite is anti - business and has a lot of business leaders frightened."

Yep, I'll bet there are business leaders all over the place just terrified Mitt Romney is going to get elected. That anti-business candidate.