Decline Rate

The oil price collapse has opened a wide rift between high quality “good” assets, breakeven “bad” assets, and ruinous “ugly” assets.  The consequences will impact energy markets for decades to come.  In our recently published Drill Down Report, we demonstrate the differences between good, bad and ugly wells by examining the diversity of production economics across the Eagle Ford basin and why producers have been zeroing in on the counties——and areas within those counties—where initial production (IP) rates are highest, and preferably where large volumes of associated natural gas and natural gas liquids can be found as well. Today we consider Eagle Ford counties in more depth—their IPs, their internal rates of return (IRRs), and the number of new-well permit applications in each county in the first quarter of 2016.

There was no open outcry trading on the CME NYMEX yesterday because of the MLK holiday but after rallying on Friday U.S. crude prices resumed their descent here in electronic trading and the London ICE Brent contract lost $1.40/Bbl to close at $48.77/Bbl. Unsurprisingly the Baker Hughes oil drilling rig count is down by 209 (13%) since December 2014 as producers take a hard look at their production budgets. Yet production is still expected to increase in the short term – in part because the rigs that are left will focus on “sweet spots”. In today’s blog “It Don’t Come Easy – Low Crude Prices, Producer Breakevens and Drilling Economics – Part 2” Sandy Fielden looks at the assumptions behind RBN’s IRR and breakeven scenario analysis.

With natural gas prices for CME NYMEX Henry Hub futures averaging $3.69/MMBtu so far this year, you might think that the internal rate of return (IRR) for dry natural gas wells in the Haynesville would be under water.  But in fact, wells are still being drilled with IRRs in the low teens.  Granted these wells don’t look nearly as good as liquids plays in other shale basins, but the wells are profitable.  How could this be when the cost of a typical deep, multistage horizontal well in the Haynesville can run $9 million? Today we take you through the math in our production economics model and provide a downloadable spreadsheet.