How Texas Estimates Future Oil and Gas Production Michael Ege Air Quality Division Texas Commission on Environmental Quality (TCEQ) National Oil and Gas Committee November 9, 2017

Overview Background Developing growth factors to estimate future production Energy Information Agency (EIA) forecasts Hubbert’s method Historical Production in Texas Development of Texas growth factors 2012 Eastern Research Group (ERG) project 2016 ERG project Barnett Shale projected production Observations

Background Future emissions estimates are developed by growing base-year emissions to the target year using growth factors. For oil and gas sources, the growth factors are typically based on estimates of future production. Natural gas Crude oil Condensate

Developing Growth Factors to Estimate Future Production Traditionally, EIA Annual Energy Outlook (AEO) forecasts have been used to estimate future production. For shale areas in Texas, Hubbert’s Method has been used. For the rest of Texas, the EIA AEO forecasts are used.

Hubbert’s Method Based on the Hubbert Peak Curve theory, production tends to follow a bell-shaped curve. Using an estimated ultimate recovery volume and historical production data for an area, a best-fit curve is used to estimate future production. Theory was first published by M. King Hubbert in 1962, in the National Academy of Sciences publication 1000-D.

Historical Production in Texas The following graphs show historical production amounts from the Texas Railroad Commission (RRC) for three areas: Barnett Shale; Eagle Ford Shale; and Permian Basin. These areas have experienced a large amount of horizontal drilling in shale areas. Production in the Barnett Shale and Eagle Ford Shale has currently peaked and begun to decline. Production in the Permian Basin is beginning to flatten out in 2017.

Historical Production in Texas (cont.)

Historical Production in Texas (cont.)

Historical Production in Texas (cont.)

Development of Texas Oil and Gas Growth Factors In 2012, growth factors were developed by ERG project “Forecasting Oil and Gas Activities.” Five different methods were used to forecast future production. Method 1: Constant production Method 2: Model equations developed using 2000 through 2011 production data Method 3: Hubbert’s Method Method 4: Hubbert’s Method for Barnett Shale applied to other shale areas, but shifted by 8 years Method 5: EIA crude oil and natural gas price projections Hubbert’s Method (Method 3) was selected as the preferred method for shale areas.

Development of Texas Oil and Gas Growth Factors (cont.) In 2016, updated growth factors were developed by ERG project “Growth Factors for Area and Point Sources.” Hubbert’s Method used for shale areas EIA AEO forecasts used for rest of state Instead of predicting the decline of production to zero, minimum production amounts were chosen based on historical data. The peak number of wells was estimated to occur at the peak year of production and held constant for four years before declining.

Barnett Shale Natural Gas Projected Production The following graphs show projected Barnett Shale natural gas production based on four of the methods used in the 2012 ERG study. Method 3 projection (Hubbert’s Method) has been the preferred method to estimate future production for shale areas in Texas. Hubbert’s Method generally predicts higher peak production and a steeper decline after the peak. Projecting from a later base year can help “autocorrect” these issues.

Barnett Shale Natural Gas Projected Production (cont.)

Barnett Shale Natural Gas Projected Production (cont.)

Barnett Shale Condensate Projected Production The following graphs show projected Barnett Shale condensate production based on four of the methods used in the 2012 ERG study. The RRC changed its definition of a gas well versus an oil well in 2012, which caused condensate production to significantly increase unexpectedly compared to 2011. Projecting from a later base year helps to “autocorrect” this issue, and the Hubbert’s Method projection from 2014 fits well.

Barnett Shale Condensate Projected Production (cont.)

Barnett Shale Condensate Projected Production (cont.)

Observations For shale areas, the Hubbert’s Method appears to be the preferred way to estimate future production in the short term (5-10 years). For longer term projections, the EIA AEO forecasts may be better. Hubbert’s Method doesn’t account for a resurgence in drilling in the future. Predicting when drilling will increase in the future is difficult. Potential future projections may include combining the two methods.

Observations (cont.) For natural gas production, it is interesting that the Barnett Shale, Eagle Ford Shale, and Permian Basin experienced similar growth curves. Each of the three areas also peaked at similar production levels. Some type of external issue seems to be capping production. Infrastructure issues? Natural gas demand? The following graph shows the natural gas production for the three areas, with the curves shifted in time to match up the peaks.

Observations (cont.)

Contact Information Michael Ege (512) 239-5706 Michael.Ege@tceq.texas.gov TCEQ Air Quality Research and Contract Projects Web page https://www.tceq.texas.gov/airquality/airmod/project/pj.html

Questions?