Thursday, April 16, 2009

GMX Well Economics

The other day, I noted that there is a growing chorus of voices that is suggesting that the rosy profit and return projections from the Haynesville Shale drillers may be underestimating the true costs of drilling Haynesville wells. I'm a numbers guy, not a geologist, so while I appreciate returns analyses, I can't fully understand and analyze the inputs used to come up with the numbers. That's the case here - the companies know all of the inputs and those of us on the outside have to make educated guesses about some of the (most important) inputs.

In GMX Resources' presentation at the Developing Unconventional Gas (DUG) conference earlier this week, the company published some good detail on the well economics. In a later post, I'll show a chart with pro forma well capital expenses (the cost side). Below are a few slides showing some of the key inputs into the revenue side of things, including decline curves (from a hypothetical well with 5.4 Bcfe EUR and three different cost scenarios), some daily production data on GMX well Baldwin #17H, and some return scenarios based on different cost and gas price assumptions.

Because publicly traded companies are required to be forthcoming with important information, there is a lot of interesting data, but there is still a lack of transparency so that one can't fully vet the numbers.

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