Replies to This Discussion

Permalink Reply by FXEF on November 21, 2010 at 13:14

Jack,

Below is an Exco cost breakdown chart. I would guess SWEPI should be about the same.

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Permalink Reply by Les Bamburg on November 21, 2010 at 13:43

Jack, well cost should be in the $9.0-9.5MM range. Recoverable reserves are +/- 6.5 Bcf per well.

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Permalink Reply by Robert Duke on November 21, 2010 at 15:57

Hi Les,
Any estimates on the real range for where they have currently drilled? This 6.5 Bcf estimate is central core, right? On the edge being tested, what, half that? I think I remember the PHK map having some rather rapidly dropping estimates away from the center. I suppose time will tell in the HS to a certain extent, but some of the Barnett experience is transferrable? Personally, I would be just thrilled if my little well burped out 6 Bcf over the next 20 years, and I am guessing that you need roughly 3 Bcf to have any hope of being commercially viable at $4-$4.50/Mcf gas (feel free to provide better guess :-)).

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Permalink Reply by Les Bamburg on November 21, 2010 at 16:34

Robert, reserves per well vary from 1.5 - 3.0 Bcf on the low end up to 10-12 Bcf on the high end. The 6.5 Bcf is an approximate average over the play. You can essentially ignore the Petrohawk EUR map as there is not sufficient data at this point to create such a map and Petrohawk seemed to pump up their average acreage "quality"

A NYMEX gas price of $4.00 - 4.50/MMBtu would require reserves of 3.1-3.6 Bcf to break even (ie 0% ROR) or 5.6-6.5 Bcf to generate a 10% ROR after tax.

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Permalink Reply by Robert Duke on November 21, 2010 at 16:46

Wow, getting 10% ROR looks tougher than I thought; much be the impact of UMO as well as tax. Thanks for bothering to expand on current best guesses as to what is happening with the play.

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Permalink Reply by Les Bamburg on November 21, 2010 at 16:51

Robert, it is primarily the function of royalty payments, capital cost and the high initial production decline rate. Carried working interest (UMO) is not part of my calculation.

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Permalink Reply by ALongview on November 21, 2010 at 17:15

Les, What do you estimate you will have to see for the price of gas for this thing to be commercially developed? Any guesses as to how long it will be before we see this scenario? You see huge % returns in Eagle Ford and Marcellus but the EUR is lower in both. How big of a factor is this in your opinion?

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Permalink Reply by Les Bamburg on November 21, 2010 at 18:08

AL, some areas are being commercially developed today since they are economic at low natural gas prices. To return to previous activity levels I think most producers would like to see NYMEX levels at +/- $7 per MMBtu. I would not anticipate that level pricing until the 2013 - 2014 time period. All shale gas plays will eventually be impacted by continued low natural gas prices with various factors determining the level and timing of the impact on each play.

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Permalink Reply by Robert Duke on November 22, 2010 at 7:47

Hi Les,
Yes, I was just thinking of UMO or UMI as representing a higher "effective royalty overhead" on the well AFTER the driller hits the point where he is getting ROI (ie., whatever % of the well unit is unleased, after his costs are covered, the driller just loses all of that as potential ROI). But I was also underestimating the effect of royalties on getting to the point where the driller can start getting ROI. Anyway, leases, while costing a bit up front and forcing HBP drilling, do help mitigate some of risk for the driller, in that the more of the unit he can lease, the higher the ROI on a really good well. I bet lots of numbers get crunched in making both leasing and drilling decisions!

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Permalink Reply by Henry on November 22, 2010 at 0:52

Robert,

I think of it this way... The driller only gets 75% of the gas (the other 25 going out in royalties). So, at $4.00 per mcfe, it takes him 3 BCfe of production to make payout ( $4.00 X 3,000,000 X 0.75 = $9M)

Meanwhile the royalty owner gets a continuous stream of 25% of the gas. So, over the life of the well, he gets 25% of that 6 Bcf = 1.5 Bcf.

For the UMO, who doesn't worry about paying royalties to others, he reaches payout ($9m) when the well produces 2.25 Bcf of gas. ($4.00 x 2,225,000 = $9M). After that, all that production is available for the UMO to keep. So if I use Les B's number of 6 Bcf EUR, that leaves the UMO with 3.75 Bcf for himself -- much more than the royalty owner.

If the price of gas gets back in the $5 range, UMO becomes very attractive again.

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Permalink Reply by Jack Blake on November 22, 2010 at 2:48

Jack Blake went to see Mrs. Jane on Saturday and she said that by 6-1-12 gas will be at and remain above $5/mcf.
Jack Blake

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Permalink Reply by ken hatcher on November 22, 2010 at 3:09

Ahhh, but Jack this Fed free money program has got to cause inflation, where might it be by 6-1=12 ?

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