Posts from Eric Penner

Thursday, 09/26/2013

The internal rates of return (IRR) for our model of a typical Haynesville dry gas shale well is in the low teens at today’s gas prices. That is a low return compared to the liquids rich plays that producers are concentrating on these days. The economics of shale well production are calculated the same way for liquid shale plays – there is just more uplift from the higher priced liquids output. And natural gas output continues to surge with associated gas from the liquid wells. Today we complete our analysis of shale production economics.

Thursday, 09/19/2013

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.

Thursday, 09/12/2013

Oil and gas shale production economics are creating an era of low cost energy in the US. But how do you decide if drilling one well is any more profitable than drilling another well next door or in a different basin? Just like with any other investment opportunity you compare net present values (NPV) and internal rates of return IRR). Today we continue our rundown of shale production financial return calculations with a review of variable production costs and NPV.

Thursday, 09/05/2013

 

Shale has transformed the economics of oil and gas production in the U.S. and is creating an era of lower cost energy. Attractive rates of return are bringing producers to profitable shale plays like bees to a honey pot. Among the keys to those attractive rates of return are high initial production and high cumulative production rates in the early years of typical shale wells. Today we continue our rundown of shale production financial return calculations with a review of well production estimation techniques.

Wednesday, 08/28/2013

Shale production has transformed the economics of oil and gas production in the U.S. and is creating an era of lower cost energy. Yet drilling and completion costs are typically far higher for shale wells than they are for conventional drilling. Higher initial production and ultimate well recovery rates contribute to better economics for these unconventional wells.  To understand how this works we need to get into the details of shale production costs and revenues. That is the objective of this series.  Today we continue our rundown of shale production financial return calculations.

Thursday, 08/22/2013

The shale gas revolution has transformed the economics of oil and gas production in the U.S. and  its effects have been far reaching ,including reduced dependence on imported oil and gas  supplies and strengthening domestic manufacturing through lower energy costs. Much of the credit for the technological innovation that allowed this revolution to take place is owed to the late George Mitchell (1919 – 2013) and the members of the Mitchell Energy shale gas team who persevered with the technology. Today we begin a series describing the technology and economics behind the shale drilling boom.

Thursday, 07/11/2013

The shale revolution has done away with natural gas price volatility, at least for now.  And that has been a bad thing for natural gas storage.  Merchant storage facilities make most of their money on either seasonal gas price differences or short-term price fluctuations, or both.  Unfortunately, the oversupplied market has flattened out prices, removing the primary source of storage value.  But there are other ways of extracting value out of natural gas storage. Today we explore several of these strategies.

Monday, 06/17/2013

The natural gas trading market has been getting a lot of attention lately and not in a good way. A couple of weeks ago the Wall Street Journal published two articles describing the fact that traders have started to reduce their presence in natural gas storage.  At about the same time, Oneok, once a big player in energy services shut down its operation that had used natural gas storage and pipeline transportation capacity to provide those services to the industry.   With gas production still coming on strong, more gas being used for power generation and the possibility of serious LNG exports on the way, what’s the problem?  Today we look deeper into turmoil in the natural gas markets.

Wednesday, 06/05/2013

By: Eric Penner

A lot of natural gas storage follows a time honored pattern – put gas in during the summer and take it out during the winter.  But it is getting much more complicated than that.  Developments in natural gas production – particularly in the Appalachian (Marcellus) region will be driving big changes through the gas storage business.   Today we pick up on a blog series we started last month to examine the two fundamental value generating gas storage mechanisms, and how they match up with the physical characteristics of storage facilities.