Business strategy for upstream oil and gas producers and service companies
Our focus is to develop and implement strategies that are practical, sustainable and allow organizations to achieve their full potential. Our consultants have long histories of working closely with senior executive teams of firms of all sizes to help their companies not only be successful, but achieve performance that stands out relative to peers.
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Economics of Shale Gas===========================================================================================================================================================
(Cost of Supply to Develop Light, Tight Oil and Shale Gas)
significant portion of our consultancy involves understanding the
economics of the E&P industry and then communicating
understanding to our clients to
help them with acquisition and divestiture decisions (A&D),
project economics, and strategy. In the exhibit titled, "US Natural
Gas Supply Curve", the "average" economics of over 30 different US
based gas plays are represented. The curve represents detailed
analysis by the Energy Consulting Group for each of these plays in
terms of costs and revenues. Drilling (F&D) and
operating costs are usally based on
information publicly released by operators, but ECG also uses
estimates derived from our general knowledge of such costs gleaned
from working projects in a particular area. In
addition to standard lease operating expenses (LOE), the
operating costs include transportation and processing
Revenue estimates are based on a combination of potential
production volumes and flat oil and gas prices. The production
curves for the tight oil and shale gas plays have a general shape
similar to that presented in the exhibit below titled, "Generic
Shale Play Production Profile". The dominant characteristic is the
steep initial decline, which, depending on the play and completion
design, can range from 50%-80% the first year. Some have questioned
the economic viability of these non-conventional plays given such
declines. However, our economic analysis across literally dozens of
plays dependent upon horizontal wells and multistage fracing
clearly indicates economic viability for many wells and plays at
reasonable levels of oil and gas pricing. The reason is simple.
Though declines are high, so quite often are initial rates, which
translates into significant (i.e. economic) early production
Please note, these economics should not be used for investing decisions of any type. These numbers represent ECG's best assessment of "average" economics and are a blend of results reported by different operators. As such, these economics do not reflect specific wells or projects, which, even within the same play, can have significantly different economic outcomes. Finally, we use one set of thresholds to define economic success, while others use different minimum acceptable economic criteria.
The generic shale play production profile presented below is representative of the literally hundreds of sets of such profiles that ECG has prepared for shale play economic analysis. ECG has modeled dozens of such plays, and has segmented the major shale gas and tight oil plays by production performance. We have confirmed the reasonableness of the profiles by using a combination of publicly available company reports, and state oil and gas commission data. In ECG's work with private equity firms, and others interested in investing in oil and gas assets, we have found that the ARPS parameters, such as Di and b, generated using the public information agree closely with those derived from data room production data. While the production profiles vary in the specifics of defining features such as initial rates, cumulative recoveries, decline rates, etc. they all share the feature of relatively high initial decline rates before settling into a relatively slow decline production profile. The reservoir physics of why these plays have such profiles are well defined, and so such similarity is to be expected, but this is not the place to discuss. Please contact us at firstname.lastname@example.org for more details if curious.
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