State of the Union Address on Natural Gas, by CSFB
Tue, Jun 22, 10:56 AM ET, by Keith Schaefer, Oil and Gas Investments Newsletter
CSFB, or Credit Suisse First Boston, a US brokerage firm, estimates that all-in costs for natural gas producers is roughly $5.25/mcf, in a 37 page report issued June 21. While the report had no startling conclusions, it did have some interesting facts and figures that often don't filter down to the retail investor, such as: - more productive gas rigs mean lower cost structures (an average horizontal gas well only takes 2/3rds the time it did 2 years ago) -over half of US gas production is hedged in 2010 at $6/mcf or better – by their estimates -the liquid-rich Granite Wash play of the Texas panhandle has the best IRR (internal rate of return) on investment of any US gas play at 64% – #2, the Marcellus liquids-rich section, was only 42% -operating costs are averaging $3.30/mcf in the US gas industry, and future development costs are averaging $2.10/mcf. (Some very good investment bankers are able to raise the equity required to fill the cash flow gap for producers who are not hedged.) -operators in the prolific shale plays are choking back production quite hard in some cases, creating "virtual storage" for gas that doesn't get accounted for in regular weekly EIA injection stats -US industrial demand is increasing. Steel utilization is up 23% to 74.6%, and distillate (diesel, heating fuel) is up 6 out of the last 7 weeks, with most recent data up 12% year over year. As a result, CSFB estimates long term US gas prices at $6.50/mmcf.
SDI Glossary: "price" Definition
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