In October, OAG360 examined the internal rate of return (IRR) in two of America’s key shale basins - the Eagle Ford (EF) and Bakken. EnerCom’s analysis showed the Eagle Ford is more economic than its rival basin by a handful of percentage points, no matter the price.

Oil prices for West Texas Intermediate crude have hovered around the $75 per barrel mark for the past week, but both basins will still provide upside if the price slips to $70 by the end of the year. In a $70 per barrel environment, the EF and Bakken provide IRRs of 12.9% and 9....

Analyst Commentary

KLR Group (11.19.14)

Analysis overview/construct

The economic analysis and NYMEX oil/gas price thresholds presented are based on E&P company capital performance derived from actual cash capital expenditures rather than company marketing presentations.

Our capital intensity computation reconciles actual cash capital outlays and production. Said another way, the cash capital cost to convert resource to production. Interestingly, the E&P industry’s capital intensity of ~$5.50/Mcfe (approximately $33/Boe) is ~$2.10/Mcfe (~$13/Boe) higher than the capital intensity implied in DD&A rates.


Cost of supply (cash breakeven): NYMEX $3.50-$4 gas/$70-$80 oil

Our analysis predicated on actual company capital performance brackets the cost of U.S. natural gas supply on the low end by Marcellus/Utica ($2.50-$3.50) and the high end by Fayetteville/Barnett ($4-$4.50).
The cost of U.S. oil supply is bracketed on the low end by the Eagle Ford/Permian Basin ($60-$70) and the high end by Mississippian/Uinta Basin (~$80).

Assuming a historically realistic 5% industry unleveraged return, the cost of U.S. natural gas supply is $4-$4.50 NYMEX, while the cost of U.S. oil supply is $90-$95 NYMEX.
Assuming a standard 10% unleveraged return, the cost of U.S. gas supply is $5-$5.50 NYMEX, while the cost of U.S. oil supply is $110-$115 NYMEX.  


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