Hart recently held a Marcellus shale webinar, featuring three speakers. I thought the entire broadcast was intriguing, but I wanted to share one nugget in particular. Randy Wright, president of Wright and Co., offered vertical and horizontal well models, with rates of return plotted against Nymex base prices. Wright modeled a vertical Marcellus well using assumptions of 100% working interest and 85% net revenue interest; $1.5 million D&C costs; $1,250 per month LOE; and $7 a barrel for water hauling and disposal. No lease costs were added, and the prices were not adjusted upward for Btu or basis premiums. Additionally, a 5% severance tax that is being considered in Pennsylvania was not added. He ran four EUR dry-gas base cases: 300 million, 600 million, 900 million and 1.2 Bcf. The horizontal well model employed similar assumptions, but used $4 million D&C costs and $2,000 per month LOE. Its EUR base cases were 2 Bcf, 3 Bcf, 4 Bcf and 5 Bcf. Results showed that at a Nymex base price of $5 per thousand, a vertical well needed to recover at least 900 million cubic feet of gas to hit a 10% ROR. That's a pretty hefty vertical well. Horizontal wells, with their greater reservoir contact, fared much better. At $5 gas, a 2-Bcf Marcellus producer can deliver a ROR just below 10%, a 3-Bcf well hits a bit below 20%, a 4-Bcf well reaches 40%, and a 5-Bcf well, 60%. Wright noted that these well models were not intended to represent typical Marcellus wells, or wells in any specific area. Rather, they illustrated sensitivities to EURs and base Nymex prices. To me, they showed why the horizontal Marcellus continues to attract investment even as other U.S. plays are withering. --Peggy Williams, Senior Exploration Editor, Oil and Gas Investor Contact me at email@example.com
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