'Weird' Gas Proves Increasingly Important to North America

EOG Resources Chief Executive Officer, Mark Papa, may call it 'weird' gas, but formations are an increasingly important component of the North America natural gas supply.

These formations refer to unconventional natural gas resources, such as coalbed methane (CBM), tight sandstone, biogenic gas and shale.

"Weird gas is not just a passing fad," Papa emphasizes. "There are only three organic growth options for North American producers today: drill deeper in existing basins, explore in new basins or pursue unconventional gas."

Papa is betting on the latter. This year, EOG plans to invest 76% of its $1.6 billion capital budget in unconventional gas plays across North America.

Interestingly, just three years ago, unconventional gas accounted for about 20% of the total gas output in the Lower 48 and non-Arctic Canada, but by 2025, the National Petroleum Council is forecasting that these resources will contribute 42% of total gas output.

According to the American Gas Association's 'Preliminary Findings Concerning 2004 Natural Gas Reserves,' published earlier this month, much domestic gas production activity in 2004 was directed toward less conventional reservoirs, such as CBM.

Declining natural gas supplies have compelled the search for new resources, and with the sustained high prices, more producers view unconventional gas prospects as an economically feasible way to expand because the wells offer low risks and predictable production. Analysts point to recent acquisitions that have focused on building an unconventional gas profile.

Larry Benedetto, Howard Weil Analyst, claims that many of the recent acquisitions have come in the Barnett shale region where producers are chasing a shale-type unconventional gas. He has apparently noted that the recent acquisition of Evergreen Resources by Pioneer Natural Resources was driven by Evergreen's CBM assets.

Even Alan Greenspan, Chairman of the Federal Reserve, evidently believes unconventional gas resources are one key to increasing supply. In a speech before the National Petrochemical and Refiners Association Conference in San Antonio recently, he noted that 'production from unconventional sources has more than doubled since 1990 and currently accounts for roughly one-third of US dry gas production. In many respects, the unconventional is increasingly becoming the conventional'.

Oklahoma City-based Devon Energy already classifies more than 35% of its North American gas production as unconventional. That figure is expected to increase as its mature properties in Texas, Louisiana and offshore in the Gulf of Mexico decline.

Devon is currently the largest shale producer in the Barnett formation of northeast Texas, holding half a million acres in core and non-core assets. It plans to spend about 10% of its 2005 capital budget, about $350 million, to drill 225 wells in the play.

"In the core and non-core areas, we and the rest of the industry are only recovering around 10% of the gas in place," says J. Larry Nichols, Chief Executive Officer. "That says there's still a tremendous amount of gas left in that reservoir that today no one has the technology to get out." This article provided courtesy of EyeForEnergy