Morning Thoughts – Waiting

I don’t have a lot to say, other than I’m still waiting to see gas turn. It does feel as though a bottom of sorts has been established…. For now. Weather forecasts could look worse…

I touched on the EIA drilling report yesterday but did not elaborate much.

Gas production 2020 vs 2019 for December

EIA focuses on 7 different major US production areas each month. First we see that production has decrease in all areas except Permian. Of course, producers in this area are used to giving away gas; why stop now…

Most production areas will look like this over the last 10 years; lots of growth, a slow down or decline around 2015, and a large decline over the last year. Notice for Anadarko, production started declining long before the Pandemic. Prices were already on the decline in 2019; as were rig counts. Something I also pointed out was Haynesville and Appalachia had huge wells. Let me elaborate on that now.

You can see in the Anadarko region, rig count started to fall pre-2019.

From late 2018 to late 2019, producers reduced the number of drilling rigs in Anadarko from about 150 rigs to roughly 50 rigs. This decrease in drilling activity allows for a true drop in production, starting mid to late 2019. So it only takes a number of months for production to fall after drilling falls, and at a very defined rate.

This means it takes a lot of drilling activity to keep production flowing in the Anadarko region.

Now, in the Appalachia Region, we can see that back in late 2014, drilling rigs fell quite hard, and production continues to climb. Some of this is due to DUCs; Drilled, but Uncompleted wells. So DUCs will skew things a bit, but you can see a clear difference in the number of rigs it takes to produce so much more gas per well in the Appalachian region.

Something else I might point out is that only so much growth can be achieved with so many drilling rigs, or completions crews rather. In the EIA DUC supplemental report, is a clear snapshot of DUC for the Permian region from late 2013 to late 2019.

This should give a rough, but clear picture as to how the Appalachia region was able to grow during 2015. My point has been made clear, well in this region are very larger in relation to other regions per rig or per hole drilled.

Another point is that production growth, is many regions, is more dependent upon completions than drilling. More precisely, fracking. It takes a whole fleet of frac pumps, each that rest upon a semi trailer, parked all around a well. From 12 to 20 at a time. It all depends on the well size; how quickly they want to finish a job, and the size of pad to park all the equipment. There’s also the water tanks, 10 or so of those, a sand king and all the sand trucks coming and going; the chemical tank to mix sand and biocide, the manifold to tie it all together. Then there is the wire line crew that has to run explosives down the hold between frac stages…. Less than half of these amount of equipment and 1/3 the personnel are required to drill the same well. This DUC supplement is just as important, if not more important than rig counts, when looking at future gas production. Every region has DUCs, meaning at some point drilling easily go ahead of completions, making completions the deciding factor as to how much a region will grow production.

I could go on about all this, maybe even have something useful to say 😉 but I have to stop here.

My positions as of pre-market 12/8/2020

The pain continues and I continue to wait.

NGF21 on 2 hr chart at

Gas is showing a clear RSI diversion pattern, but technical indicators often fail for gas, as weather is not so predictable. Obviously prices have stopped falling for the moment. It may come down to the next clear weather snapshot. It would seem LNG will continue to be strong, as LNG import pricing among other countries is indicating a strong need for gas. It comes down to US production and US demand, with the focus on weather related demand.

I’ll be holding my positions for now. Good Luck


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