After 9 years where are we?

According to the AOGC cumulative total record of the 4696 wells listed the average total production to date per well is 813,571 MCF. At todays price of $3.96 with no hedges or discounts  that would be $3,221,741.00 per well.  The average AFE is about $3,500,000.00 (of the ones I have seen).  So at the end of the day, at todays price (which is somewhat higher than what was received in the last few years, but lower than the first few years) it appears to be about a break even for the operator. (ignoring royalty...if you factor in a 20% royalty then at todays price it is about a million dollar loss per well)

Interesting statistics...I realize this is an extremely rough approximation, but it is probably fairly accurate.

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2013 at 1:13

Evan, can you give more specifics on the 4696 wells?  Do they represent all the wells drilled in the state over 9 years.  Just the gas wells?  Or just the horizontal gas well completions?

Permalink Reply by dbob on May 9, 2013 at 12:01

I'll bite t

Permalink Reply by Andrew on May 9, 2013 at 14:33

I'm pretty sure he's talking about the Fayetteville Shale. See the most recent economic analysis of it here.

Permalink Reply by adubu on May 10, 2013 at 0:43

In the calculations the avg. prices are > than the $3.96 of today for last 9 years. Nat gas increased in 2002 to  >$5 plus stay above that price for next 5-6 years and 2007 hit as high as $14 so avg. gross revenue per well is higher than estimate just IMO for I have not attempted to calculate avg. monthly price thru last 9 years. Operators have made lots of profit and so have some royalty owners. Agree not true if you look only at last 3 years with prices dropped as low as $1.85 one  month but during last 18 months prices  have now double off the the lows (Nat Gas up >100% in last year sounds good but not back to profit YET-- except for few operators with low cost) $4 today feels a hell lot better today than when it was going down and hit low of $4. Operator sad in 2010 with $4 gas now happy with $4 gas :))

Permalink Reply by Mark Pomeroy on May 10, 2013 at 3:01

I have not looked at the Fayetteville in the last year and a half, but based on what you are quoting we can do a fairly quick economic analysis. Some of the economic assumptions are more accurate than others, so if anyone has an opinion, it would be good to hear it.  So here goes:

Well cost:  $3.5 million

Gas price:  $5.00 per mmbtu for life.

EUR:  1 BCF, this would reflect your calculated average cumulative with a bit of optimism.

Royalty burden, 25% (I use this because when I was working in AR, it seems like this was what leases were going for)

Monthly operating expense, $3000

Qi, 2 MMCFPD

Qa, 66 MCFPD

b 0.8

Minimum decline 15%

Results

ROI, ratio:  0.97

Years to payout (doesn't)

Internal rate of return <0

Profit, ($95,000)

PW @ 8%, ($573,790)

That sound about right folks?  

This shouldn't be construed as saying the actual Fayetteville Shale play is unprofitable, but Evan certainly suggests the possibility.  

Permalink Reply by adubu on May 10, 2013 at 5:19

Mark--- agree with you on last couple years; however most of wells were drilled in earlier years and profits have been good-- your numbers correct and reason minimal drilling now in DRY GAS fields--needs NGLs and Condensate to drill today.

Permalink Reply by Evan Brent on May 16, 2013 at 7:38
Yes, I was only writing about the Fayetteville Shale. I recently read SWN's latest release and they are now using a much lower drilling cost. In the 2.5 million range. Not sure if that includes lease cost. On the SWN website they state 2.1 million for first quarter wells, but then state 2.7 million as the estimate for 2013 wells. Somewhat confusing.
Permalink Reply by Evan Brent on May 20, 2013 at 1:32

I looked at all the current applications on the AOGC site today and the AFE's I found are running well above the SWN estimate on their website.  For instance the XTO AFE's are over 4MM.  I think the 3.5MM is still a good average estimate for a completed Fayetteville Horizontal well. I would agree that an average of $5.00 per MCF is probably about right for the time period 2004-2013.  The early years were higher but there was little production at that time. Unfortunately the peak production has been in the last few years at the lower prices.  With no liquids at all in the Fayetteville I am still not convinced that any of the players have really made any money. 

Permalink Reply by Evan Brent on May 20, 2013 at 2:32
  1. 2005   8BCF at average of 7.32MCF
  2. 2006 83BCF at average of 6.39MCF
  3. 2007 320BCF at average of 6.26MCF
  4. 2008 692BCF at average of 7.97MCF
  5. 2009 914BCF at average of 3.66MCF
  6. 2010 865BCF at average of 4.48MCF
  7. 2011 613BCF at average of 3.95MCF
  8. 2012 315BCF at average of 2.65MCF

Average prices are from DOE, Production from AOGC.  All wellhead prices, no hedging or discounts for location taken into account.  Total average gross income for each of the 4696 wells is then a little over $4,000,000.00.  Average royalty is at least 20% and average cost is at least $3,000,000.00 per well with no administrative overhead taken into account.  If I have made any mistakes in this summary I would appreciate your pointing them out.   

Permalink Reply by Mark Pomeroy on May 20, 2013 at 5:52

The weighted average of this summary is $4.88 per MCF. 

Permalink Reply by Evan Brent on May 31, 2013 at 0:37

It is very difficult to come up with a cost for wells in the Fayetteville. For instance the Carr 08-17 #1-33H which was originally drilled by Petrohawk and assigned to XTO and is on the latest AOGC hearing schedule shows a cost of over 7 million dollars, with gross revenue of 1.2 million.  That is almost 3 times what Seeco is reporting for their newest wells. My somewhat educated guess is that the actual all-in cost for the Fayetteville horizontals is at least the 3.5 million figure I have been using. 

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