Essentially, half of the natural gas produced in the U.S. flows from wells drilled and completed during the past 40 months, said Dr. Phillip Stark, vice president of IHS Inc. That's eight months shorter than the figures of just two years ago. I attended Stark's presentation at the 20th Annual Rocky Mountain Natural Gas Strategy conference, a joint effort by the Colorado Oil & Gas Association and Rocky Mountain Section of AAPG. More than 3,000 people thronged the Denver event, a lively and bustling affair. Stark pointed out that high prices have stimulated a great deal of drilling activity, but the shift to lower-volume unconventional sources means that the U.S. must have increased and robust drilling to continue to grow gas production. Increasingly, the U.S. relies on gas production from new and current drilling: in 1996, less than 9,000 gas wells were drilled in America, and in 2006 more than 30,000 were drilled! Stark presented an intriguing analysis of gas-play economics. Based on capex, operating costs, royalties and clearing prices, IHS has quantified returns by play. In 2005, when it started this effort, about 85% of U.S. gas plays generated at least a 10% return on investment on average. By 2007, less than 40% of plays scored in the desirable range. Today's gas prices are quite strong and most every play makes economic sense, but the IHS analysis highlights the vulnerability of gas profitability to costs, price volatility and basis differentials. So, while national gas production and reserves are growing, this growth depends on strong prices and very active drilling campaigns. --Peggy Williams, Senior Exploration Editor, Oil and Gas Investor email@example.com
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