“With today’s prices, EOG’s returns are marginal given the uncertainties, and payback is either 46 months with an IRR of 16%, or never and -2% IRR if the $45 WTI price were to persist." - Randall Collum, managing director, supply side analytics, Genscape.
Houston, TX (PRWEB) April 09, 2015
The crude oil contango market in the U.S. has created a massive incentive to store oil and, while traditional storage hubs reach record high levels, Genscape analysts have identified a trend for operators look to their own wells as an avenue to store until commodity market conditions improve (March 30, 2015, Wall Street Journal, http://www.wsj.com/articles/oil-prices-fall-as-iran-deadline-nears-1427705404). Already, over 800 wells are being deferred by Cabot, Chesapeake, EOG, SM Energy, Apache, and Anadarko alone, accounting for about 373 Mb/d of oil and 528 MMcfd of gas according to Genscape analysis.
Genscape economic models indicate the oil price decline to $45 WTI has priced out the majority of the Eagle Ford and Bakken oil plays, except for the very cores of the plays. Besides completion deferrals, rig counts are expected to decline further based on the forward curve, and this expectation is supported by Genscape’s economic findings reported in Oil and Gas Production Forecasts.
EOG Eagle Ford is one of the companies monitored by supply-side experts at Genscape, and it’s also positioned in the core of the Eagle Ford play. “With today’s prices, EOG’s returns are marginal given the uncertainties, and payback is either 46 months with an IRR of 16 percent, or never and -2 percent IRR if the $45 WTI price were to persist,” says Randall Collum, managing director of supply side analytics at Genscape. “Deferring completions and receiving the improved pricing in the forward curve not only saves them capital this year, but would pay back the well investment slightly faster.”
Understanding and accounting for well completion deferrals is emerging as a critical element to gain a complete understanding of today’s market drivers. Genscape’s complimentary white paper detailing the market conditions leading to the trend to defer wells, as well as the reactions of specific companies, is available here: http://info.genscape.com/defer-wells-white-paper-press.
Genscape analysts have developed additional detail behind the shale play breakeven analysis with the key operators analyzed within proprietary models. In the Bakken, Eagle Ford, Marcellus, and Utica alone (four key areas of oil and gas growth), Genscape has compiled 108 different operator play economic models to calculate breakeven prices and to delve deeper into understanding drilling and completion economic drivers.
Using a bottom-up approach that accounts for well economics, Genscape’s forecasting models for oil and natural gas are integrated with the forward price curve so reports adjust to market conditions. Additional information about the production forecasts for oil are available by visiting http://info.genscape.com/oilproduction-april2015, while information about natural gas forecasts is available by visiting http://info.genscape.com/natural-gas-production-april2015.
Genscape is the leading global provider of real-time data and intelligence for commodity and energy markets, driven to improve market transparency and efficiency. With thousands of patented monitors strategically deployed worldwide, Genscape is unique in its ability to collect and report proprietary market fundamentals in real-time or near real-time. Genscape delivers innovative solutions across a number of asset classes including: Oil, Power, Natural Gas and LNG, Agriculture, Petrochemical and NGLs, Maritime, and Renewables. Genscape clients often gain important insights, improve risk management, or increase operational efficiency. For more information, please visit: http://www.genscape.com