EQT Corp has 720,000 net acres in the Marcellus, including 3,300 core drilling locations with strong economics. For its 7,000 foot laterals, EQT earns an after-tax internal rate of return (IRR) of 15% at $2.00/MMBtu, increasing to 43% at $2.50/MMBtu and 89% at $3.00/MMBtu. EQT states that it now costs $5.70 million to drill a well (7,000 foot lateral) that can recover 14.7 Bcfe economic ultimate recovery. The company also says the economics of the wells improve with longer laterals. A 9,000 foot lateral earns a 19% IRR at $2.00/MMBtu and a 115% at $3.00/MMBtu. These strong economics are based on cheap F&D costs, similar to Range and Cabot. Based on these positive economic results, EQT is expected to increase production ~9.0% in 2017 and an additional 18-20% in 2018. This is a result of a 50% increase in 2017 capital spending to $1.5 billion after the company slashed investment by 40% between 2014-2016. |
Obviously, economics for gas producing assets in Appalachia will improve with new pipeline projects coming online. Rice said that 47 rigs were running in Appalachia (Marcellus (32) and Utica (15)) at the end of Q3/16, and that about 45-50 rigs are required just to keep current production flat at 22 Bcf/d (16.7 Bcf/d Marcellus, 4.6 Bcf/d Utica). With an ~18 Bcf/d of incremental firm transportation capacity coming on line by 2019, up to 125 rigs would be needed to provide enough production to keep those pipelines filled. This additional capacity will slash the basis differential at Tetco M2 in half from -$1.20/MMbtu in 2016 to -$0.66/MMBtu, further increasing the returns on Appalachian gas assets. |
Antero Resources has exposure to the rich (wet) gas play in the Marcellus. The company shows that even within the rich gas play, well economics can vary significantly. In the accompanying chart, Antero shows the economics of its highly rich gas/condensate and highly rich gas plays. Using the 12/1/16 oil and gas strip prices and a mid-point of economic ultimate recoveries for each well and a $7.80 million well cost, the highly rich gas/condensate play generates a 90% pre-tax rate of return, while the highly rich gas play earns a 58% pre-tax rate of return. Both plays boast low F&D costs, $0.38/Mcfe and $0.42/Mcfe, respectively. However, the NYMEX breakeven gas price is substantially different, $0.89/MMBtu for the highly rich gas/condensate play and nearly twice that level for the highly rich gas play. In 2017, Antero is expecting a 23% increase in total production to 2.2 Bcfe/d, including a more than 50% of increase in liquids output. Antero expects to accomplish this while keeping exploration and development capital spending flat at $1.3 billion in 2017. |
Range Resources also has wet Marcellus gas wells but the economics do not appear to be as rosy as its dry gas assets or Antero’s wet gas wells. At a $3.00/MMBtu gas price and oil prices of $50/bbl in 2017 and $65/bbl thereafter, Range Resources’ wet gas wells are expected to earn a 25% rate of return. In contrast, Range’s dry gas wells earn a 54% return and Antero’s rich gas wells earn a 58% return under slightly less aggressive price scenarios. Range’s wet gas wells have a EUR of 20.6 Bcfe composed of 50% natural gas and 50% liquids with the vast majority of those liquids being NGLs. At a well cost of $5.80 million, F&D costs are a very competitive $0.34/Mcfe. Range says it is the only producer with current capacity on Mariner East, the Sunoco Logistics-owned NGL pipeline taking natural gas liquids from Appalachia for delivery to domestic markets and to the Marcus Hook NGL hub to access international markets. The pipeline gives Range the option to sell propane into Europe, which could boost returns from its wet gas assets. |
