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Why The Average Natural Gas Well is Unprofitable

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The economics on the average natural gas well in Western Canada are uneconomical. Based on price forecasts and current costs, there is too much of a spread to make a profit. Costs for the average Junior Oil and Gas company (10,000 BOED and less) will have to decrease by 30%+ to create a profitable well.

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Why The Average Natural Gas Well is Unprofitable

  1. 1. Why the average natural gas well is unprofitable<br />An Overview on a Natural Gas Well In Western Canada<br />
  2. 2. The last 10 years<br />Percent Differences 1997 to 2007<br />Over the last 10 years – 1997 to 2007<br /><ul><li>Capital spend on wells has increased from $17B to $31.6B
  3. 3. Production increased from 5.14M BOED to 5.97M BOED
  4. 4. Gas production increased 5% and oil production increased by 31%
  5. 5. Find and development costs per BOED has increased from $9.14 to $14.53
  6. 6. Average cost per well has increased by $1.2M to $2.0M
  7. 7. Average production per well has decreased from 49.8 BOED/Well to 30.0 BOED/Well
  8. 8. Active operated wells has increased from 103,257 to 198,617</li></ul>Figures from Canadian Association of Petroleum Producers<br />Numerical Figures 1997 to 2007<br />
  9. 9. Projections for the future<br />Average Gas Well Drilled in 2008<br />Production in the Western Basin<br />Natural Gas Production in the Western Basin<br /><ul><li> 65% of the basin is natural gas
  10. 10. Average gas well in the western basin is unprofitable
  11. 11. Costs have escalating faster than revenues
  12. 12. Average cost per BOE was $49.95 or $8.32/MCF for Q3 2009
  13. 13. Average Sell Price per BOE was $34.66 or $5.77 for Q3 2009
  14. 14. New royalty regime in Alberta will penalize higher gas prices
  15. 15. Bottom Line: Until Gas is over $8.32 on average, a natural gas well will not turn a profit</li></ul>Revenue from Sproules May 2009 Price Forecast<br />Costs are $7.63/MCF as per NEB<br />
  16. 16. Contact<br />How to Contact Chris Hamilton<br />Please contact me via Linked In:<br />http://ca.linkedin.com/in/chrishamiltonca<br />

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