I've got it. I've created the perfect business plan: an E&P-oriented MLP that I call MyShaleYouTubeMLP.com. That ought to insure many happy returns, don't you think?

While Alaskan politicians and producers bicker over what's to become of that state's untapped natural gas resource, go-getters in the Lower 48 are wasting no time. Resource plays of all kinds, especially shales, are the on-ramp to more natural gas production.

"Unconventional gas will be 42% of U.S. production by 2010, up from 27% in 2005," reports energy-research firm Wood Mackenzie.

You may not truly appreciate the magnitude of what is going on today in natural gas. Add up the investments planned for drilling and new pipelines in the key Rocky Mountain, Texas and Midcontinent gas plays, and you will. Spending in these plays is on fire, as two articles in this month's issue make very clear.

Operators in these plays are well on their way to delivering the equivalent of several North Slopes of gas by the end of this decade. Since January 2005, U.S. gas production has edged up from about 55 billion cubic feet (Bcf) a day to 56 Bcf currently. Three-fourths of that increase is coming from Wyoming, Texas and Oklahoma, the Energy Information Administration reports.

Current Barnett shale production of about 2 Bcf a day could more than double to 5.5 Bcf a day by year-end 2010, according to a Citigroup analysis of company plans. The U.S. Geological Survey estimates Barnett reserves are 26 trillion cubic feet (Tcf) of gas.

Individual companies' reserve numbers are growing exponentially. Quicksilver Resources' proved reserves tripled last year with nearly all that attributed to its Barnett shale holdings. Southwestern Energy Co.'s Fayetteville shale acreage holds an estimated 11 Tcf of net proved. (It's still early days, but last year it booked 300 Bcf of proved there.) Newfield Exploration Co. estimates its Woodford shale acreage holds unbooked potential of 3 Tcf to 6 Tcf, depending on well spacing.

Drilling budgets are growing exponentially as operators gather as much net present value as possible. In the Barnett, Devon Energy plans to drill 385 wells this year, 90% of them horizontal. Chesapeake Energy will invest more than $1 billion there this year and plans up to 400 wells. Quicksilver Resources claims it has 2,000 locations in the Barnett.

In the Fayetteville, Southwestern Energy Co. plans to spend $875 million this year to drill 400 to 450 wells and quadruple its production there.

An optimist can guess what is possible by extrapolating from what happened in the Barnett during the past 20 years. In a 40-mile-diameter area covering that play's sweet spot, some 3,700 vertical and more than 1,000 horizontal wells have been drilled.

If one draws a like-size circle over the Woodford map in southeastern Oklahoma, only 150 vertical wells and about 200 horizontals have been drilled so far. Many more are scheduled. According to Newfield, and based on a plethora of technical parameters and type curves for wells already producing, the estimated ultimate recoveries per Woodford well are 3 Bcf, a number that exceeds the average estimated ultimate recovery from Barnett or Fayetteville wells.

What's more, the Caney shale lying uphole from the Woodford may be even more prospective, with a thicker shale interval, Lee Boothby, president of Newfield Exploration Midcontinent Inc., recent told the Houston Energy Finance Group. The company plans to spend about $500 million in the play this year.

"These plays look easy once they work, but trust me, 'it ain't easy' and not all shales are equal," he said.

These shales are a wonderful addition to U.S. gas supply. But whereas the average U.S. gas well declines about 32% annually, a shale well typically declines 60%, at least, in the first year. So, as the percentage of gas production from fast-depleting shale wells goes up, the overall U.S. gas decline curve will become steeper.

Longer term, the U.S. gas picture will have changed once these thousands of new gas wells are on the admittedly long tail end of their production. If all of them are producing only, say, 200,000 cubic feet a day, the supply will look pretty strained.



We have some very good news. This year at our sixth annual A&D Strategies and Opportunities conference, August 29 in Dallas, we have added an exciting new component, The A&D Workshop. This is a half-day instructional program on upstream business development that precedes the full-day conference. It's designed for newcomers on BD teams and firms that provide services in E&P mergers and acquisitions. Attendees will hear Business Development 101 basics on upstream M&A trends, reserve analysis, negotiating skills, networking, screening acquisition prospects, land and legal due diligence, and tricks and traps of the A&D business. For The A&D Workshop agenda and to register, go to hartenergyconferences.com.