"As always, thanks for such a fabulous service.

"I've attached a pdf (with intro email) which I believe will be of interest to the collective and to both of you -- the first section of the pdf describes in considerable detail how the current price of natural gas may have to rise substantially (up to $6-7/mcf) in order to make fracking sufficiently profitable. The article also describes the current major shift of drilling activity from natural gas over to oil (as one might expect with the current oil/gas price ratio). I have obtained the author's permission to forward this for posting to the Fullermoney subscribers' area.

"I have seen another study by a well respected Professional Engineering firm specializing in determining the official sizes of reserves -- this study suggests that depletion rates (the rate at which the available gas is sucked out of the well) for many fractured wells in Texas is over 70% in the first year (this is even faster than the models described in the pdf). In contrast, conventional wells can have very long lives, with first year depletion rates in the 10-30% range. If people are interested, I can see if I can obtain permission to forward this information.

"Depletion rates are incredibly important, because they determine how much natural gas will be withdrawn before the flow rate is too low to maintain the well economically -- requiring major workover of the well, or shutting it in.

"(Note - I have been involved in oil and gas investing since the early 70's, and own gas wells and mineral royalties in Texas and Oklahoma; I worked in the oil fields as a youth, and many members of my family have spent entire careers in the oil fields.)"

"My son and I are looking forward to the London Chart Seminar in May."

Eoin Treacy's view Thank you for this educational email, for sharing your vast experience and gaining permission to reproduce the attached report. I look forward to meeting you both at the upcoming London seminar. You are part of a trend which has been in evidence over the last few years. An increasing number of parents are bringing their offspring along to The Chart Seminar in an effort to equip them with some of the tools necessary to preserve their wealth.

Here is a section from the report you mentioned:

After about five years of active drilling in the oldest shale basins has begun to disprove certain of these characteristics and their implications on well economics. We have learned that gas shale basins still need a trapping mechanism in order to be productive.

Drilling has also shown that gas shale plays have "sweet" spots that produce higher well volumes than wells drilled outside of the "sweet" spots. These realizations have begun to dispel the manufacturing concept for how gas shale fields would be developed. We have learned that by drilling longer lateral sections and applying greater numbers of hydraulic fracturing treatments to wells, gas volumes can be maximized. The problem has been that the cost to secure the acreage to drill these gas shale wells and the drilling and completion costs are not particularly cheap. Since natural gas prices are so low due to growing gas production and weak gas demand, the economics of many gas shale wells have been called into question. We are also finding that many gas shale wells are not producing the volumes projected. This latter observation is highly contentious among participants within the oil and gas industry.

However, the more data that is collected, the greater the confidence the critics of gas shale profitability have that these plays may not be the goldmines proponents claim.

In Art Berman's AAPG presentation, he presented the chart in Exhibit 4 showing that within the Barnett Shale play, when the production from newly drilled wells during the last 12 months is excluded, gas production declined at a 44% annual rate. The importance of this static well analysis is that it highlights the need for producers to continually drill new wells in order to grow production, or maybe merely to offset production declines. The significance of the analysis is that the E&P industry is on a treadmill of new well drilling with the likelihood that the slope of drilling activity is rising with cost implications unknown.

Unconventional gas drilling in non-permeable or semi-permeable rock was always going to be a more complicated procedure than conventional drilling in less difficult to access regions. Shale gas operations are notable for their initial supply surge and the relatively short time before they hit peak production. They have to keep drilling since fracking only frees up gas in a small region of the overall shale field. This is good news for drillers and servicers rather than production companies. I haven't seen data on the flow rates from shale oil wells. I wonder is the same initial flow rate followed by a marked slowdown evident in oil wells? If subscribers have additional information on this front I'm sure it would be of interest to the Collective.

Reserve estimates are always subjective because we cannot know how technology will evolve and high prices make previously unattractive jurisdictions viable. Economics are as much a part of reserve life calculation as any other factor. As the pricing structure improves previously dismissed regions can take on a new lease of life. Shale gas itself is just such an example. If the most conservative estimate for US shale gas reserves is 20 years at current consumption that is still a substantial block of time.

However, the story is so much bigger than that. LNG was already on a powerful growth trajectory before unconventional gas became a factor. Conventional and unconventional gas supply on a global basis is increasing. Major oil companies such as Exxon Mobil and Shell now produce more gas than oil. Natural gas is increasingly becoming more of a globally traded commodity. If natural gas migrates from a mostly local market to a global market, the flood of additional supply from the USA and potentially elsewhere could keep downward pressure on natural gas prices over the medium-term.

According to fueleconomiy.gov a natural gas fuelled car gets approximately 24 mpg in the city and 36 in the country. A diesel car gets 30 in the city and 42 in the country. While in Melbourne I saw service stations selling petrol for A$1.51 and natural gas for A56¢.

Natural gas is cheap, comparatively clean, reasonably efficient, the infrastructure exists to supply the retail market in cities, any car can be converted to run on it and it has none of the range issues associated with electric cars. When one compares natural gas as a fuel with the investment required to make a speculative technology such as electric cars viable, I simply do not see the benefits. In a high energy price environment, the impetus is on consumers to either become more efficient or to substitute. Natural gas appears a sensible, proven alternative.

The migration of drilling rigs from shale gas to shale oil is a notable event. Depending on the success of shale oil operations, and there is no reason to suspect otherwise, the relative attractiveness of oil over gas drilling could diminish the excess supply in the gas market and prices may rise.

The US price of natural gas has been ranging with a downward bias for more than a year. It has posted a progression of incrementally higher reaction lows over the last six months but a sustained move above $5 would be required to indicate demand is beginning to return to medium dominance.