The economics of Alberta’s Duvernay Shale – NEB

January 10, 2018 Markham Hislop Alberta
This chart shows the supply costs in C$ per gigajoule for the Duvernay Shale’s marketable gas resource. There are four sets of two curves. Each set represents a year from 2015 to 2018. The pairs in each set represent fixed oil prices of C$60 per barrel and C$70 per barrel. Supply costs are progressively lower with each year. Costs based on C$60 per barrel oil are slightly higher than $70 per barrel oil in each pair. Each cost curve gradually rises until it nears the 72 Tcf area. At this time the curve becomes much steeper as it approaches the total amount of marketable gas available of 76.6 Tcf. Source: NEB

In the Duvernay Shale, some areas are economic even at negative gas prices

One billion barrels of oil, 12.0 trillion cubic feet (Tcf) of natural gas and 1.4 billion barrels of natural gas liquids are economic in the Duvernay Shale according to a new report by the NEB.

This means that at 2017 well costs and oil and gas prices, about one third of the Duvernay’s marketable oil resource is economic, along with 16 per cent of its marketable natural gas resource and one fifth of its marketable NGL resource.

Oil prices in 2017 have averaged about C$60 per barrel for light sweet crude oil in Edmonton, and C$2.50 per gigajoule for natural gas at the Nova Inventory Transfer in Alberta.

The NEB estimated supply costs for the Duvernay Shale’s marketable resources by determining the crude oil, natural gas and NGL prices required for a well to cover its costs and earn a 10 per cent profit.

The NEB report provides the details of supply costs calculation including the assumptions made and definitions used.

The chart below shows the supply costs for the Duvernay Shale’s marketable gas resource. The chart shows four sets of two curves. Each set represents a year from 2015 to 2018. The pairs in each set represent fixed oil prices of C$60 per barrel and C$70 per barrel.

Assuming well costs continue to decrease in 2018 and crude oil and natural gas prices modestly rise, the Duvernay’s economic resource would increase to become over 40 per cent of its marketable natural gas resources, almost two thirds of its marketable oil resources, and over half of the Duvernay’s marketable NGL resources.

The above is assuming 2018 average crude oil and natural gas prices are C$70 per barrel and C$3.00 per gigajoule respectively.

The 2018 well costs (expecting companies continue to increase operational efficiencies) were assumed to be 16 per cent less than 2017 well costs.

Resources Gas (Tcf) Oil (billion barrels) NGLs (billion barrels)
2017 2018 2017 2018 2017 2018
Economic 12.0 32.9 1.0 2.2 1.4 3.4
Marketable 76.6 3.4 6.3
Map of supply costs of the Duvernay Shale marketable gas resource over the study area
This map plots the supply costs of the Duvernay Shale marketable gas resource over the study area (2018 well costs with oil prices fixed at C$70 per barrel). The marketable gas is most economic in pockets in the north central part of the Duvernay Shale basin and in pockets to the far southeast. Source: NEB

In the Duvernay Shale, some areas are economic even at negative gas prices. This indicates that, in those areas, companies earn enough revenue from oil and NGL production from a well that they can lose money on the natural gas production and still make a profit.

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