A month or so ago there was discussion here about whether there exist any shale NG trusts.
Here is one coming up:
ECA Marcellus Trust I (IPO)
I haven't researched this and am unsure whether it sounds like a good deal. If shale plays decline as fast as is reported, I wonder whether a trust like this would be a good investment.
Here's someone who thinks not...
Would anyone like to take a look at the prospectus and share their thoughts?
The production of shale gas is causing the importation of overseas gas including LNG to go down by 12 percent. Shale gas is one way for the US to seriously lower our dependence on foreign O&G. The missing link is users, free market should work to see some industries switch to gas, such as transportation and more power plant. These 2 articles support my position:
The expenditure is equivalent to the total U.S. shale gas M&A expenditure for 2008 and 2009 combined, which was US $19.7 billion and US $2 billion respectively, said Luke Parker, manager of Wood Mackenzie's M&A research service. "Through the first half of this year alone, in excess of 35 trillion cubic feet (tcf) of shale gas resource changed hands at an average cost of US $0.60 per million cubic feet of gas equivalent (mcfe)."
Net U.S. imports of natural gas reached the lowest level seen since 1994, or 12 percent of total consumption, as the surge in shale gas activity continues to push gas production in the U.S. Lower 48 states, the U.S. Energy Information Administration (EIA) reported this week
Demand has been increasing this year (partly due to hot weather, but some increase in baseline demand too).
Trouble is production has been increasing even faster.
Yes, could be trouble for the NG industry over the next couple of years if they get no opportunity to renew hedges at favorable prices.
has anyone researched the shale etf enough to know if the portfolio is holding oil shale and granite wash interbedded shale players along with the ng shale?
I hold HGT CRT and think these will be good to add to position if prices do soften over the next several weeks
Lisa, my investigation of shale NG is as fallow:
The extraction of NG is done by drilling in the shale gas formation horizontally. The Horizontal production pipe is made of 2 pipes which are perforated. While in the drilling configuration the perforations are not lined up. Once the depth and length of the production pipe is set, balls are lowered from the surface that slide the inner pipe perforations to line up with the outer pipe perforations. At that time NG can flow to the surface. The shale gas is locked in the shale formation. Water under high pressure is used to unlock the shale gas. Therefore some wells are used to inject water and others to produce shale gas.
By design the shale gas must be unlocked, water pressure used as a limited efficiency. First, water is used in large quantity and must be treated on the surface for discharge in an environmental friendly way. The shale gas wells production life is very much shorter than standard NG wells, such as the Texas or New Mexico.
I know that some NG gas reservoir can produce for years, 15, 20 years of more. The Qatar NG field is one, and the Algerian gas fields are the other. These NG field do not need more new wells every so often. Injection of water is introduced and keep the reservoir under pressure, the reservoir is made of sand or material equivalent. Shale gas will require many more wells as the injection of existing wells cannot unlock the gas locked in the shale formation. Spacing of wells must be optimized for efficiency.
This mean shale gas will be more expensive to produce than standard gas. Yes the US has 100 years of shale gas, but its production is a new technology that does not have a track record yet. Can units at $19 or $22 produce a good royalty, compared to standard gas, need to be shown. My understanding is that the water usage seeping and polluting the natural potable water is a concern. Also the returned water disposal is another problem. I understand that water treatment plants are in shortage near the drilling area. Water is trucked to exiting water treatment plant, adding to the production cost. Yes shale gas is interesting but cautious must take place.
I looked at the prospectus and the dividends do decrease after the first three and one-half years, but not on a substantial basis. Owning ECT for the first three-year front end dividends is worth it for sure.
I haven't read the whole thing yet, but I noted:
Bulk of the trust assets are paying out at 50%. Only 14 wells are at 90% payout.
The hedging is significant to maintane a decent percent distribution.
not clear to me whether the tax reporting is as a roylaty trust or as a partnership(K1).
I'll wait till it comes to market and then reevaluate.