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What Does Oil Cost to Produce in the TMS?

Posted by bernell on October 27, 2014

I reviewed Encana’s latest (from July for the TMS) corporate presentation this morning and found an interesting tidbit on Page 23. 

Here is a link to that presentation:

A picture of page 23 is shown at the bottom of this post.

As I understand it, the slide is estimating that a boe (barrel of oil equivalent) will cost $45 - $55 to produce in the TMS. 

A couple of the key assumptions used are $13 million well cost and 650,000 to 750,000 boe.

I'm going to play with these assumptions just a little.

First, I'm thinking the $13 million is definitely doable while in the development phase, whereby 4 wells per pad drills are drilled.  And, we'll accept EnCana's estimated ultimate recovery numbers.

But, let's ignore the wet gas produced since, for the time being, this gas is not being sold and certainly not for a high enough price to warrant drilling in the TMS.

Ignoring the gas, let's assume 90% oil, just to be conservative since the oil percentage has averaged around 94%, and see what the price of oil would need to be to "break-even" in the TMS.

$55 divided by .9 = $61.11.

Now, considering the price bonus paid for the Louisiana Light Sweet Crude, which has been easily as much as $10, but, again being conservative plus rounding to be easier on the memory, let's add $1.89 to the market price we see quoted.

Using all of these assumptions and adjustments, I estimate that a $63 price of oil would be necessary in order for the TMS to become unprofitable to drill.

Lots of assumptions, I know. 

And, there are factors I'm confident I haven't considered. 

So, let me hear from you...what am I missing?


What do you think about it?