Natural Gas: The Hybrid Model Is Expanding

CALGARY — Layoffs at Talisman Energy Inc. announced Wednesday have put an exclamation point on the dramatic fall from grace of a once high-flying segment of Alberta’s oil and gas industry, while raising the prospect of additional pain for producers grappling with low commodity prices. Calgary-based Talisman, which has cut its 2013 capital budget 25% to $3-billion and plans to raise roughly $500-million this year through asset sales and joint ventures, said 90 employees in its Calgary office were being let go because of low North American gas prices and spending reductions.

ByRichard Zeits:Among North America's natural gas fields, the Marcellus is broadly recognized as one of the lowest-cost sources of supply. However, when it comes to estimating specific natural gas price levels - in Henry Hub terms - that would be required to support sustained drilling activity in the field, there appears to be a fair amount of divergence in opinion among investors and analysts. Estimates vary widely, from as low as $2.50/MMBtu to over $5/MMBtu.

The Canadian petrochemicals industry is well placed to benefit from low natural gas prices, if only it had access to new markets, exports to the United States were not falling and one of its most crucial feedstocks was not in short supply. Sound familiar? In many ways, the Canadian petrochemical industry is tracking the fortunes of the country’s natural gas industry: an expected bonanza of riches in long-term gain, but pain in the short term.

A new, multinational sub-industry is developing: The production of natural gas from tight sands, shale and coal bed methane (CBM) in significant quantities. What started as a niche play in Texas has spread across North America and from there to Australia (CBM, tight sands). China is the next large emerging play in all three forms of natural gas production with India following.

In 2009, shale dominated the natural gas news in North America as important new shale plays emerged and both reserves and production from shale grew impressively as did the associated field infrastructure to gather, process, treat, compress and connect the gas to major transmission systems. While shale will continue to excite E&P companies and capture the imagination of investors in 2010, its sister resource, tight sands gas, is likely to get increasing attention.

I attended the American Geophysical Union meeting in San Francisco two weeks ago at which I heard a very interesting presentation by David Hughes of the Post Carbon Institute. He is more pessimistic about future production potential from U.S. shale gas and tight oil formations than some other analysts. Here I report some of the data on tight oil production that led to his conclusion.

Bill Francis submits: With Reliance and Quicksilver (KWK) honing in on a Horn River Basin Joint Venture and this being Reliance's third major deal within the past 4 months, I wanted to look back at what the major acquisitions consisted of in the top 5 shale basins since the natural gas price collapse in 2008.

Kurt Wulff (McDep Associates) submits: We add small cap independent producers, Ultra Petroleum (UPL), Range Resources (RRC) and Petrohawk (