Not every gas well is a gusher

Something that’s important to remember is that natural gas production is a risky business. There’s a lot of exploration and science that goes into figuring out where to drill a well, but a company never knows precisely how things look underground. Sometimes things work out as planned, and sometimes they don’t.

As a result, there are a number of cases where a company drills a well, but the well is unsuccessful – nothing or very little comes out. In that case, the investment that the company put into the well is lost. The well doesn’t produce enough natural gas (and hence, not enough revenue) for it to be economic.

Even when a well is successful (that is, enough natural gas comes out to make the well economic), the amount it produces can still be quite low. Not every well is a gusher.

In fact, the vast majority of natural gas wells in Alberta today produce relatively small amounts of gas.

In fact, in 2014, about two thirds (68%) of all producing natural gas wells in Alberta produced only between zero and 1000 cubic metres (roughly 35,000 cubic feet) of natural gas each day. Another 11% of all producing natural gas wells produced between 1000 and 2000 cubic metres each day.

Of the 104,046 total producing natural gas wells in Alberta in 2014, only 616 wells in the entire province (or 0.6%) produced 50,000 cubic metres or more per day (roughly 1.8 million cubic feet).

Why is this? There are several reasons.

One is that the biggest and generally most productive gas pools tend to get found first. They are both larger in area (so they’re easier to stumble across), and they are the most valuable. So they are what explorers look for most, sometimes ignoring much smaller possibilities. In Alberta, the largest pools were generally found early.

You can see how average pool sizes fell through the 1980s and 1990s. Small gas pools tend to have fewer and lower productivity wells. All of this means the average natural gas well in Alberta has been getting less productive over time.

A second reason is that all wells, no matter how productive they are to start, decline in productivity over time. Gas pools are generally found at high pressure, since they’re usually sitting under kilometres of rock.

As the natural gas is produced, this pressure goes down. And in turn, less gas is produced. Think about one of those inflatable swimming pools for little kids. When it’s fully inflated, there’s pressure inside. When you first start to deflate the pool, the air will rush out on its own. But as air comes out, the pressure inside the kiddie pool gradually falls, and less air comes out on its own. Eventually, to get the last bit of air out, you have to add more pressure (by rolling it up, or squishing it, etc.)

Even if a particular well is a “gusher”, it will produce the majority of its gas during the first few years of its life. After a number of years, the well’s daily production will typically stabilize at a fraction of what it was when it was first drilled. The well can then go on for many years producing that same, lower amount.

Alberta’s natural gas well profile has started to change in the last few years.

New high-cost long horizontal fractured wells in many areas of the U.S. (and in British Columbia and Alberta) have very different production profiles. They produce at a much higher initial rate but they also decline at a much higher rate.

There has been enough production from these new wells to reverse the long-term overall decline trend. And they are fed by very large areas of low permeability rock that has natural gas throughout. (The gas hasn’t had enough time to move through that very dense rock to form conventional pools of oil and gas.)

This rock is very thick, and covers large areas of the province. So there are enormous amounts of gas to be found in the future. But it is produced with different technology, different practices, and in different locations in Alberta than the conventional gas that has been produced from the late 1800s until today.

All of this is important to think about as we consider how to optimize Alberta’s royalty framework.

Source: Alberta Energy; Alberta Energy Regulator