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Permalink Reply by Dexter Green on August 2, 2014 at 4:30pm

Interesting.  So they are estimating an ~85% decline from month one to month 24, but in that time they're also estimating only ~30% of the total EUR is produced.  That seems...optimistic.

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Permalink Reply by Philip Thackray on August 3, 2014 at 12:38am

Dexter,

I'm working on a Present Value calculation for a royalty stream and this EQT Excel spreadsheet format is a great resource for me.  Previously I was digitizing published decline curves.

All of the decline curves that I see seem very optimistic but what can I do about that?  I digitized a Consol decline curve for the wet Marcellus and it matched the EQT curve for the wet Marcellus very closely.  The Rex Energy decline curve for my area (Southern Butler County, PA) is more optimistic than the EQT and Consol curves.  As you noted, they rely on significant production rather far out in time to make the EUR numbers.  But their own calculation of Internal Rate of Return use a 10% discount rate but the published IRRs look good. ????

Furthermore, look at the production numbers for, say, the EQT Northern WV Wet Marcellus.  The well makes a billion cubic feet (equivalent) in five months!!  There is not a single well in Butler County, PA that has made it to a billion cubic feet (gross) in the first year and most have not made it there in the second year.  I also think that the wet gas "enhancement" is exaggerated.  I'm in a wet gas unit and I see the "enhancement" on my check stubs.  With the current NGL prices and processing charges the "enhancement" is less than 20%. 

My PV calculation only uses the decline curves in a relative fashion.  I compare actual well production (PADEP, ODNR) over a time period to the predicted production (published decline curve) over the same time period and scale the production curve accordingly.  I then enter the scaled production in to the Excel Net Present Value calculation.  I have the spreadsheet in place and now I'm just waiting for the PADEP 2014 1H report.  The XTO wells around me only went on line June 2013 so the PADEP 2013 2H had limited data.

I didn't pay anything for my royalty stream so it is all good to me, but I wonder just how many Marcellus and Utica wells are actually profitable to the O&G companies.  I see a serious oversupply situation for perhaps another four or so years.  At these prices NPVs don't look good.  South East Ohio, some West Virginia, parts of Washington, Green, Allegheny Counties in PA and North East PA look good.  But most of the rest of the areas seem marginal at these prices.  Time will tell.

Phil

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Permalink Reply by Jon on August 3, 2014 at 12:41pm

I wonder what the ngl decline curve is like.

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Permalink Reply by Philip Thackray on August 3, 2014 at 1:16pm

the NGL decline curves follows the wellhead cubic feet decline curve on every chart I have seen.  The condensate and oil declines are much more rapid.

For local wells (Southern Butler County - wet Marcellus) I know how much dry gas and how many NGL are produced for each 1000 cf from the well head.  So I can use the decline curves as outlined above to compute $s per 1000 cf from the well head numbers.  EQT is using well head mcfe (thousand cubic feet equivalent) but knowing the make of the well head separated products I can solve for actual well head mcf from the mcfe numbers.  In this area there is not significant condensate.

Phil

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