Death, taxes and depletion

• Published in: Oil & gas investor Vol. 19; no. 6; p. 50
• Main Authors: Simmons, Matthew R, Pursell, David A
• Format: Magazine Article
• Language: English
• Published: Houston Hart Energy 01.06.1999
• Subjects: Capital expenditures; Commodities; Drilling; International; Natural gas industry; Oil reserves; Petroleum industry; Petroleum production; Prices; Production capacity; United States > US
• ISSN: 0744-5881

Only a few certainties are constant: all executives will eventually die, profits will always be taxed, and all oil and gas fields ultimately deplete their reserves. It turns out that depletion - or perhaps, more properly, the decline rate of existing production - is the missing link in the industry's thinking about supply. The amount of new supply that must be added just to keep current production rates flat, let alone grow to meet growing demand, is a major challenge. US gas-directed drilling has declined from 654 rigs a year ago to 369. A significant drop occurred in a six-month period, as the rig count fell by nearly 200 from early October. The combination of a low rig count and increasing decline rates is creating a troubling supply-side situation for domestic gas production. An analysis clearly indicates increasing gross gas-well decline in the late 1980s and into the 1990s. This increasing decline trend is a function of several factors, including 3-D seismic and horizontal drilling technology driving the development of smaller and smaller fields, more aggressive exploitation through more efficient completion practices, and production at capacity almost year-round. Depletion was the overlooked issue in the 1990s. But it will be known as the big issue of the first decade of the next century.