Monday, October 1, 2012

An Unconventional Play Comparison

I've assembled data from 11 oily unconventional plays across the U.S. to make a comparison with the Tuscaloosa Marine Shale.  With only ten completions in the play, we're still very much in the "R&D" and "derisking" phase of this play.  To date, well costs have been a popular topic.

The chart below presents well costs vs estimated ultimate recoveries (EUR) for eleven unconventional plays.  I've also placed three TMS wells with their actual or AFE costs for comparison.  The decrease in costs is occurring and I expect the costs to continue to decline.  The AFE of the Weyerhaeuser 60H-1 of $12.1 million is the lowest that I've seen to date.  Keep in mind that once this play shifts to "development mode", the use of the resource play hub (RPH) approach, will result in significant cost savings.  I've heard that locations are currently costing $1 million.  Drilling 4-10 wells from one pad will be very cost effective.

The chart below indicates that for the TMS to have similar "cost to EUR" relationships, the drill costs have to range from $9-12 million with EUR's in the 620-750 MBOE range.  Encana has already announced that they believe 730 MBOE is achievable.  I understand that one of the TMS operators has $9.5 million for well costs in their 2013 budget.


4 comments:

  1. A very interesting comparison, Kirk. Looking at your chart above, one would conclude that TMS well cost must come down and/or EUR/well must go up. I'm not familiar with most of the Plays in your comparison. If oil price during development of those was significantly lower, that could be an equalizer. It would be interesting to see a comparison of well cost vs. revenue/well as well.

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  2. Tim,
    If oil price lowers, we have to assume it lowers for all plays. The TMS does benefit from pricing of Light LA Sweet crude (~$10-20/bbl premium). I don't have access to revenue information so some assumptions have to be made.

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  3. For each of the Plays, the Operator made his decision to develop, or continue developing the resource based on a corporate pricing outlook for crude and gas. If any of these Plays were developed a few years ago, like 2005 - 2008, crude price was fairly level at $70/bbl. Crude price in the past couple of years has been fairly steady at $90 - $100/bbl. With that uplift in price, the operator could afford either more expensive wells, or lower EUR from similar wells. I realize you don't have access to the operators' corporate pricing outlooks. That data is very tightly guarded. My comment above was just to point out that higher oil price encourages development of economically inferior resources. That LightLA premium is an additional incentive for the TMS. Thanks for pointing that out.

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