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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Contact Bill at insight@energy-cg.com to find out how we can help you.
Economics of Shale Gas
(Cost of Supply to Develop Light, Tight Oil and Shale Gas)
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A significant portion of our consultancy involves understanding the economics of the E&P industry and then communicating that 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 fees.

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 volumes.

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.

General Example of the ECG US Natual Gas Supply Curve
 

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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 insight@energy-cg.com for more details if curious.

Generica Shale Play Production Profile
 


Exhibit_1

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