Hydraulic Fracturing Digest: The Economics of Shale Gas and Hydraulic Fracturing in California


[author: Earl Hagström]

The enormous flurry of hydraulic fracturing and production activity in the Marcellus, Utica, Barnett, Fayetteville and Haynesville Shale plays over the last several years has led to an oversupply of natural gas.  A little more than a year ago The New York Times published an article in which the author concluded that most natural gas wells were not commercial unless prices remained in the range of $8.00 to $9.00/ per million cubic feet (mcf), which at the time was considered by many to be the breakeven point. Price forecasts for 2012 were in the $4.00 to 4.50/mcf range.  A year removed from that, a New York Times article stated the price of natural gas has declined to an average of $2.50 mcf and remained in that range for most of 2012.

The decline in natural gas prices has refocused exploration and production efforts on shale basins that have higher liquid production potential.  One need only look at the ongoing activity in the Bakken and Eagle Ford Shale plays. These shale plays are oil rich, and hydraulic fracturing, just as it has with natural gas, has been used to increase oil production in these basins.  Farther west in California is the Monterey Shale Formation, a prolific oil producing formation situated in Southern California. The Monterey Shale is estimated to contain more than 500 billion barrels of oil in place.  One way to unlock this vast resource is through hydraulic fracturing.

The California Department of Oil Gas and Geothermal Resources (DOGGR), anticipating an increase in hydraulic fracturing activity in the state, is in the process of drafting hydraulic fracturing regulations. It anticipates releasing the regulations in January 2013. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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