The Marcellus Shale is the most productive natural gas formation in the United States, with wells stretching across Pennsylvania and West Virginia. For oil and gas royalty owners, understanding how Marcellus wells produce gas over time—and how production declines—is crucial. In this article, we’ll explain how the Marcellus decline curve works, focusing on hyperbolic decline, external factors that affect production, and tips for maximizing royalty income.
What Is Hyperbolic Decline?
The Marcellus decline curve follows a type of pattern called hyperbolic decline. Basically, this means production starts high and drops quickly in the first few months, then slows down over time. Hyperbolic decline is common in shale wells like those in the Marcellus Shale.
The formula for hyperbolic decline looks like this:
Here’s what each part of the formula means:
- q(t) is the production rate at any given time
- qi is the initial production rate (how much gas the well produces when first drilled)
- Di is the initial decline rate (how fast the production rate falls early on)
- b is the hyperbolic decline constant (affecting how quickly production levels off. Typical values range from 0.4 to 0.7)
- t is time
This formula assumes no external factors, like choking (slowing the well’s flow to preserve pressure) or refracturing (stimulating the well to boost output later).
Chart: Marcellus Decline Curve with Cumulative Production
The chart below shows both the production rate in MMcf/day and the cumulative production in Bcf over time. This helps visualize how a well’s output changes over its lifetime.
As you can see, the steep decline in the first few years is followed by a more gradual decrease. The green line shows how the cumulative gas production adds up over time.
External Factors that Affect the Marcellus Decline Curve
Several factors can influence how quickly or slowly a well’s production declines, including:
- Choking Wells: Operators sometimes slow down gas flow from a well to maintain pressure and extend its productive life. This can flatten the Marcellus decline curve, leading to steadier production over time.
- Refracturing: After a few years of production, operators may refracture a well to unlock more gas. This temporarily boosts output, altering the decline curve.
- Well Spacing: Wells drilled too close together can interfere with each other, leading to faster declines. Proper spacing helps maintain steady production.
- Commodity Prices: Natural gas prices also affect how operators manage production. If prices are low, companies may hold back production. If prices rise, they might increase output, which could speed up the decline.
How the Marcellus Decline Curve Affects Royalties
For royalty owners, the Marcellus decline curve has a direct impact on income. Royalty payments are based on production, so as production declines, so do payments. Early checks tend to be larger because of the high initial production, but they drop significantly as the well’s output falls.
Here’s what to expect:
Year 1: Payments are highest due to the rapid production rate. Remember to set plenty of money aside for taxes.
Years 2-3: Production declines more gradually, and payments decrease accordingly. By the end of year 3, the well has already produced half of its total revenue.
Year 4 and Beyond: Wells continue producing smaller amounts of gas, providing steady, but lower, royalties as the remaining half of income is paid out over the next several decades.
Maximizing Royalties Over Time
While decline curves are inevitable, there are steps royalty owners can take to maximize their income:
- Negotiate Favorable Lease Terms: Ensure your lease covers things like gross production value (before expenses) and limits post-production costs, which can reduce your royalties.
- Monitor and Audit Payments: Regularly check that operators are accurately reporting production and paying the correct royalties.
- Stay Informed About Refracturing: If your well is being refractured, it could temporarily boost royalty payments.
Conclusion
The Marcellus decline curve is an essential concept for understanding how natural gas wells produce over time. The steep decline early on is typical, but wells can continue producing for many years at lower levels. For royalty owners, understanding this curve and how external factors like refracturing and well management affect it is key to maximizing and managing income.