NGLs in the Eagle Ford add needed dollars and cents to the bottom line during times of low natural gas prices. The high btu nature of the gas stream allows companies to market higher valued ethane, propane, butane, and pentanes. The natural gas breakeven for the play when considering NGLs is reported as $1.67 per mcf, but those numbers can be misleading if you don't know how they were calculated. When you see numbers like that, always ask yourself if it represents the average gas well or all wells or is simply one well in Karnes County.
The take away is the same either way. We see lots of estimates and all arrows seem to be pointing in a good direction for the Eagle Ford.
In July of 2008, the natural gas drilling rig count rose to a peak of 1505 rigs in response to natural gas prices in excess of $13 per MMBtu. As prices fell to below $4 per MMBtu, the rig count responded, falling to 665 just one year later in July, 2009. However, this trend seems to have been broken, since even with prices hovering below $4 per MMBtu for weeks on end, the rig count has again started to climb.
According to Baker Hughes, the number of rigs actively searching for natural gas rose to 898 as of August 26th, 2011. This is up substantially from two years ago. But where is the incentive to drill at sub-$4 per MMBtu levels? The answer is natural gas liquids, or NGLs.
High cost NGLs are probably the number one driver behind rising natural gas production levels, because higher NGLs lead to lower natural gas break-even prices. For example, a natural gas well that is drier (one that contains few NGLs) may have a natural gas break-even price in the range of $4-$5 per MMBtu. By comparison, a natural gas well that is wetter (one that contains a higher level of NGLs) will have a lower break-even point. The level of NGLs present in wells varies from play to play, which is why break-even points differ based on location. For example, it is estimated that there are about 2.9 gallons of recoverable NGLs per Mcf of natural gas in the regions of the Marcellus Shale, and the break-even price for the natural gas in these regions is estimated at $3.17 per Mcf.
Another example is the Eagle Ford Shale, which is considered one of the most liquid-rich plays in the nation. Here, the break-even price for natural gas is estimated at $1.67 per Mcf. And in the Permian Basin, due to the extremely high NGL concentration, some companies are producing associated natural gas essentially for free; the sale of crude oil and NGLs allows them to give the gas away at no cost and still be profitable.
Read the full news release at seekingalpha.com
