Hold On Tight By Production – The Impact of HBP Lease Provisions on Oil and Gas Production - Part 1
Can it make sense for a producer to drill a well in today’s low price environment even if the rate of return on that well is below zero? Surprisingly the answer is yes, and the issue has important implications for the impact lower prices will ultimately have on U.S. oil and gas production volumes. Factors such as lease requirements can incentivize drilling and cause production levels to continue growing, even when spot prices don’t seem to support it. As the new economics of lower oil, NGL and natural gas prices suggest that production declines are just down the road, the market’s quest to nail down when and how much production will decline has brought the role of “hold by production” (HBP) drilling into the spotlight. Questions about HBP status and its role in producers drilling strategies have been a staple in the latest round of earnings calls.Today we take a closer look at HBP drilling.
