Study Finds Canadian and US Shale Gas Plays Each Have Advantages
A comparison of North America’s two major shale gas plays shows that producers in the dry gas US Marcellus play have a supply cost advantage, but Canadian producers in the liquids-rich Montney play enjoy higher netbacks.
Those are the key findings in a recent cost benchmarking study by JWN’s Daily Oil Bulletin and CanOils database, using comparative data from 2Q 2017 and 2Q 2016. The study was sponsored by Halliburton.
The study compared nine Canadian producers that derive most of their production from the Montney play, which straddles the border between the Canadian provinces of Alberta and British Columbia, with seven producers that derive their production largely from the Marcellus play, which covers parts of New York, Pennsylvania, Maryland, Virginia, West Virginia and Ohio.
The nine Montney producers together had average production of 480,000 barrels of oil equivalent/day (boe/day) in 2Q 2017, weighted 64% to natural gas. That equates to gas production of about 1.8bn ft³/day.
The seven Marcellus producers had total average 2Q 2017 production of some 1.7mn boe/day, weighted 82% to natural gas, for gas production of some 8.4bn ft³/day.
The relative weighting of gas in the production mix of each field is a key factor in the operating costs and netbacks encountered by producers. Marcellus producers had lower operating costs than the Montney producers, largely because Marcellus gas is drier than Montney gas, but the lack of pipeline takeaway capacity imposed higher transportation costs.
Marcellus producers had 2Q 2017 operating costs of $1.11/boe and transportation costs of $7.10/boe, while Montney producers had second quarter operating costs of $6.01/boe and transportation costs of $3.82/boe.
“Marcellus producers enjoy a significant advantage in operating costs,” the study said. “The composition of this primarily dry gas play plus extremely high well productivity help to spread infrastructure costs across a greater number of boe/d of production.”
A lack of transportation capacity in the Marcellus, however, gives the “well-connected” Montney producers an advantage, but with new capacity coming in the Marcellus, the Montney advantage may be eroded in the near future, the study noted.
Full supply costs in 2Q 2017, taking into consideration operating, transportation, finding & developing, interest and general & administrative, averaged $18.79/boe for Montney producers and $15.14/boe for Marcellus producers. But operating netbacks (oil and gas revenues after royalties, less operating and transportation costs) for Montney producers averaged $18.30/boe in the second quarter this year compared to $15.07/boe for the Marcellus producers.
“Both the Montney and Marcellus are low-cost plays,” the study found. “Higher liquids content in the Montney means higher supply costs, but Montney producers also receive the benefit of condensate sales in Alberta’s high value market.”
Dale Lunan