Documents: Leaked Shale Gas Industry E-Mails and Reports  

The New York Times has a follow up to their recent article on doubts about the financial sustainability of the shale gas rush, quoting their anonymous sources for the article - Documents: Leaked Industry E-Mails and Reports.

Over the past six months, The New York Times reviewed thousands of pages of documents related to shale gas, including hundreds of industry e-mails, internal agency documents and reports by analysts. A selection of these documents is included here; names and identifying information have been redacted to protect the confidentiality of sources, many of whom were not authorized by their employers to communicate with The Times.

Geologist and official from Anglo-European Energy:

After buying production for over 20 years, hopefully I know the characteristics of great wells (flat decline curves, low operating costs, large production), and as you know, the shale plays have none of these. The herd mentality into the shale will eventually end possibly like the sub-prime mortgage did. In the meantime it is very difficult to sell any kind of prospect that is not a shale play.


Analyst from PNC Wealth Management (2011):

Money is pouring in from investors even though shale gas is inherently unprofitable. Reminds you of dot-coms.


Analyst from IHS Drilling Data (2009):

The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work.


Retired geologist for major oil and gas company (2011):

As I think you would agree, we are looking at a bubble here with caveats. The caveats are how corporate hubris and bad science have caused a lot of folks to think that gas is nearly too cheap to meter. And now these corporate giants are having an Enron moment, they want to bend light to hide the truth. The bubble will burst, folks will get run over, reason will be restored, if only temporarily.


Official from Bold Minerals LLC (2010):

1. The players never did any careful regional studies before they made serious and irrevocable capital commitments to the various shale plays. Our scouting sources never got calls for logs or cores on the significant old tests, especially in the Haynesville. This was mystifying.

2. The pronouncement that the reservoir was uniform and covered 10 or 20 counties or (in the case of Marcellus) 5 states was absolute heresy in the conventional business. This very extravagant claim was never really debated or contested by the technical community. The downhole data for these broad sweeping conclusions was simply never there.

3. The escalation of lease bonuses to ridiculous heights and the taking of 3 year term leases put the companies in the position of being compelled to drill hundreds of potentially technically unsound wells with insufficient downhole information or face massive impairments by letting incredibly expensive acreage expire undrilled. In previous hot domestic plays, no major company would ever commit itself to lease positions of this scope and scale of expenditure that they could not afford to abandon if the technical picture became negative.

4. The ‘bait and switch’ where one massive set of capital outlays in the ‘best’ shale uncovered was soon to be eclipsed by the recognition of even better shales which required even more outlays before a thorough technical assessment of existing shale positions had been obtained could only be classified as a type of ‘mania’. It has no precedent in financial scale to any of the previous lease plays that experienced a speculative frenzy in domestic onshore petroleum history.


Official at Phoenix Canada Oil Company (2010):

It is my strong view that we will see a near collapse of that play, probably sooner rather than later. Perhaps we will see a repeat of the coal bed methane (CBM) play 'disappearance' -- where that 'exciting' development faded into history 'without a trace'!


Official from Schlumberger (2010):

All about making money. I'm working on a shale gas well that was just drilled in Europe. Looks like crap, but the operator will flip it based on ‘potential’ and make some money on it. Always a greater sucker....