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Why the Great Shale Rush in the Eagle Ford may be over sooner than you think

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An industry publication, Powers Energy Investor, seems to have caught wind of something similar last April, saying the Fayetteville shale had already reached peak production, even as companies ratcheted up their per-well recovery estimates. Based on information from the Arkansas Oil and Gas Commission and the play's leader, Southwestern Energy, which discovered the formation in 2002, the publication wrote, "It appears the meteoric production growth of America's third largest shale play is a thing of the past."

Powers went on to call Chesapeake's claim of 2.6 billion cubic feet per well "ridiculous," saying that only 9 percent of the company's wells in the Fayetteville had ever produced more than 1 billion cubic feet, and that none had reached more than 1.7 billion cubic feet. Powers concluded: "there is little doubt CHK (Chesapeake) and SWN (Southwestern) have grossly overstated their EUR (estimated ultimate recovery) per well." Chesapeake sold all its Fayetteville assets that year to BHP Billiton for $4.5 billion.

Meanwhile, the United States Geological Survey stunned observers last year when it slashed its estimate for reserves in the Marcellus shale in the Eastern U.S. by 80 percent. And Berman points to the Elm Coolee play in North Dakota, which was discovered in 2000, where production peaked in about six years, then went into steady decline despite companies drilling more and more wells. He calls it "the profile of an oil boom," and says it's a potential model for the future of the Eagle Ford (though with the Eagle Ford's size, it would clearly involve many more wells).

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Lanny Sinkin, executive director of Solar San Antonio, has another worry, saying the promise of decades-long cheap natural gas could stunt growth in the renewables market before clean-tech has time to take root. "How are we developing energy policy? Is it the latest hype? The latest goldmine we think we've discovered? Or do we have a rational public dialogue about energy policy?" he said.

City-owned utility CPS this week announced its commitment to buying an 800-megawatt natural gas plant to replace the Deely coal-fired units it has set to retire by 2018. While not necessarily an indication of long-term policy, Sinkin expressed concern. "It's understandable that the utility might be tempted to go further down that natural gas route," he said. "I guess my bottom line is that the threat to renewables comes from the fact that there isn't a level playing field when we evaluate the cost and benefit of these different technologies."

Ironically, as industry insiders at the Eagle Ford conference lauded the prospects of natural gas, they credited little of the current Eagle Ford boom to it. While UTSA's Center for Community and Business Research reported this month that production in the Eagle Ford continues to outdo analysts' projections, and that we should see "a very exponential rise" over the coming years, it's not natural gas carrying the weight. Companies like Chesapeake have flocked to the Eagle Ford, as they scale back natural gas production elsewhere, because the South Texas formation contains shale oil, along with deposits of "wet" gas rich in liquids, like propane and butane, which companies can sell for a major premium compared to "dry" natural gas. Hart with Laredo Energy said companies here continue to chase oil and so-called "condensate" since depressed prices make it impossible to break even on natural gas.

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