Eagle Ford shale : evaluation of companies and well productivity

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2016-08

Authors

Chavez Urbina, Grecia Alexandra

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Abstract

Unconventional resources, particularly shale reservoirs, are a significant component in oil and gas production in the United States as they represent (as of May 2015) 48 and 58 percent, respectively, of the total oil and gas produced. However, there has been a deceleration on oil and gas production in general because of low market prices. The drastic decline in oil and gas prices that started in 2014 has companies struggling to continue their operations, resulting in negative financial outcomes for 2015 for most companies. The present work examines the financial results of three companies, EOG Resources, Pioneer Natural Resources, and Chesapeake Energy, along with their particular well productivity using the Logistic Growth model to forecast production in one of the most prolific shale plays in the United States, the Eagle Ford. This work also examines the economic feasibility of drilling new wells when oil prices are low using a discounted cash flow model for each company. The financial analysis shows that from the three companies, Pioneer Natural Resources has the best financial results; its high cash-flow-to-debt ratio, and low debt and debt-to-equity ratios make it an attractive company to invest in. In contrast, Chesapeake has the worst results which represents high risk for investors, and EOG has moderate results that still make it a good company to invest in. The discounted cash flow model demonstrate that under the cost assumptions and estimated production used in this work, EOG gets the best results from their wells located in the Eagle Ford with break-even prices bordering the 40 $/bbl compared to the other companies with break-even prices above 87 $/bbl for Pioneer and 89 $/bbl for Chesapeake. From the discounted cash flow model, it can also be concluded that none of the companies in the analysis is expected to gain revenue from drilling new wells if oil prices are under 40 $/bbl, and that companies that are quick to respond to the low prices by reducing their drilling and completion costs can significantly improve their well economics.

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