Pennsylvania Department of Environmental Protection (PA DEP) published preliminary oil and gas well production data for August 2018 earlier this week. This data has been processed and made available to our ShaleWellCube users.
While we still observe marginal underreporting for August (with 250 million cfpd missing from HG Energy, which also delayed reporting for July), it is already obvious that shale gas production increased further from the level seen in July 2018. Taking into account reporting delays, we estimate that shale gas production in Pennsylvania surpassed 17 billion cfpd in August 2018 for the first time in history. In addition to a new all time-high production level, year-over-year growth reached a staggering 2.87 billion cfpd, which has not been seen since 2H 2012 – 1H 2014.
Figure 1 summarizes the recent evolution of shale gas production by operator, while Figure 2 provides an overview of the latest production and growth levels for the top 10 operators. The two largest shale gas operators in Pennsylvania: EQT Corporation (EQT) and Cabot Oil and Gas (COG) also contribute the most to the recent growth beating YoY statewide shale gas growth not only volume-wise but also in percentage points. As of August 2018, EQT- and COG-operated shale gas volumes account for 32.6% of statewide shale gas output, all-time high market share. Both companies are on track to report healthy production additions in upcoming 3Q 2018 results. EQT and COG exhibit 12.2% and 7.6% QoQ additions respectively.
Among other large operators, there are no companies with negative YoY additions. In fact, only Chesapeake and Repsol exhibit YoY growth below 10%, while six out of ten of the largest operators exhibit production growth above 20% YoY: Range Resources, Southwestern Energy, CNX Resources Corporation, Alta Resources Development in addition to the aforementioned top two producers.
Well economics in this mature shale gas play remains particularly robust. Contrary to major liquid plays, we observe a very limited number of unsuccessful well completions which fail to generate adequate returns. Looking at 30-year EURs and wellhead breakeven gas prices (under 10% IRR requirement) for EQT and COG on Figure 3, we conclude that the absolute majority of breakeven prices are concentrated below $2 per MMBtu level. In Figure 3, we only include wells with at least six months of reported production to eliminate potential noise introduced by peculiar EUR and well economics assessments driven by early and limited production data.
While higher EUR is often accompanied by longer laterals, increased number of stages and proppant loading (hence, higher well costs), the overall relationship between EURs and breakeven prices seems obvious from the chart. More productive wells exhibit lower breakeven prices with limited noise around the curve.
With local differentials getting more favorable with the resolution of midstream bottlenecks in the Appalachian Basin, we foresee significant improvements in the operational economic metrics for major operators in Marcellus Shale. As long as Henry Hub keeps hovering around $3 per MMBtu, we expect the market will finally appreciate unmatchable wellhead economics demonstrated by Marcellus producers.