Correct - if the downward trend continues, it could be substantially lower and at that rate it'll take
7 BCF to break even!
Or the opposite could happen. They won't drill forever at these prices and complaining about it doesn't change it, only time will do that. I am not happy that my gas is being sold at these prices but I have no control over it. All I can do is hope that the market does what the market always does when supply of anything is too high......it contracts due to price until supply is more in line with demand and then price rises. look at the bright side, it can only drop another $1.98 but the upside is unlimited.
Gathering, Treatment, Transportation and Severance will take about $1/mcf. So, a producer needs a market price of $3.50 to get the $2.50 used in your calculation. Or, with a market price of $2.50 and realized price of $1.50 a well needs more than 11 BCF to break even--it will never happen.
Yeah, but think about what you get if you are doing lease hold, particularly in areas with Bossier and Haynesville - 8 Haynesville in a section, 8 Bossier, plus everything else up hole. Figuring 5 BCF per well, that section you've held by drilling a "non-economic" well might very well hold 15 X 5 BCF - 75 BCF + plus what you find shallower. if EUR is more like 7 BCF/well, you get 105 BCF......
But you need to drill new wells for those other reserves, and pay more operating costs etc. So what if you hold 75 BCF or more; it's worthless today.
Take the long view - the price differential between gas and oil will close at some point, exporting will eventually happen, transport fleets will make changes, more natural gas fired power plants will be built, and that gas will be worth more in the future. I'm not an economist or an actuary, but companies can certainly evaluate at what point they think leasehold doesn't make sense.
In the current market, some of whats going on is work to maintain cash flow - as was pointed out in another discussion, shutting in wells only works if everyone is doing it. otherwise it simply kills cash flow.
Doob-Devon has drilled some pretty nice James Lime wells in San Augustine that are producing 30,000+ barrels of liquids and 250 MMcf in 9 months or so in units that were already HBP'd by a Haynesville well. There is a lot of value in the ground outside of the Haynesville(which will be back in a few years). Hardly worthless.
John, there are 51 drilling rigs currently working in the Haynesville/Bossier Shale play. Of those, less than half are drilling to maintain leases.
As stated before most operators are generating revenue and earnings based on hedged natural gas prices above $4.00. Also, Anadarko has 5 drilling rigs working a an area of the play that also produces condensate and NGL's associated with the natural gas resulting in higher revenue.
See the following link for drilling rig count:
To answer Jay's comment - I'm a mineral owner and hate to see my royalty sold at $2, less the 23% transportation, marketing, gathering, etc. charges - resulting in a net of $1.70.
Les - I understand lease maintenance, especially when their cost associated with each section is in the $3M range for the OGML's, however, my larger question is why are any "alternate unit wells" being drilled in this price enviornment? Regardless of Anadarko's NGL / condensate production, the vast majority of Haynesville is dry gas. Why squander 5.5 BCF to break even?
Your comment raises a question.... I seem to recall that somewhere in RS 30 the operator is obligated to operate in a manner that is "mutually beneficial" (or some such words) for the operator and mineral owner. If the operator is hedged at $5 and the landowner is getting <$2, then it is not clear how the operator can call this drilling of alternate unit wells "mutually beneficial." Just a thought.
Who said the landowner isn't hedged? There is no law preventing a landowner from entering into hedges, all they need to do is take the risk and post margain. Unlikely for a small landowner, but not for owners of 10,000 acres.