Wednesday, June 24, 2009

Cubic Energy Type Curves

Since decline curves are a hot topic of conversation in the Haynesville Shale, I thought I'd throw a couple more out there. In its annual presentation, Cubic Energy presented some detail on what it sees in terms of type curves. Cubic is a small Haynesville Shale producer with four vertical wells, and is partnered with Chesapeake Energy on some horizontal wells. Cubic's land position is in the Johnson Branch and Behtany Longstreet fields where it is squeezed in among positions leased by Goodrich and Chesapeake. Looking at the map below with results from neighboring wells, Cubic is sitting on pretty good property.

Cubic presented two scenarios for type curves (I am not a geologist, so I somewhat ignorantly refer to them as "declne curves"), a base case using 5.5 EUR (estimated ultimate reserves) and a likely case using 7.5 EUR. Below are sketches of the curves and the related assumptions.

Likely Case:
Reservoir Assumptions:
- First month average production of 8,700 MMCFPD
- Initial decline rate of 77%
- Hyperbolic ‘b’ factor of 1.65
- Terminal decline of 5%
- EUR = 7.5 BCF

Economic Assumptions:
- Capital costs of $7.3 MM/well
- LOE of $6,600/well/month
- Strip gas pricing scenario as of 1-5-(‘09 - $5.79, ‘10 - $6.86, ’11 - $7.44, aft - $7.13)

Economic Results:
- 58.8% IRR
- 4.7 : 1 ROI
- 2.2 yrs payout
- $9.4 MM PV10

Base Case:
Reservoir Assumptions:
- First month average production of 6,500 MCFPD
- Initial decline rate of 77%
- Hyperbolic ‘b’ factor of 1.65
- Terminal decline of 5%
- EUR = 5.5 BCF

Economic Assumptions:
- Capital costs of $7.3 MM/well
- LOE of $6,600/well/month
- Strip gas pricing scenario as of 1-05-09 (‘09 - $5.79, ‘10 - $6.86, ’11 - $7.44, aft - $7.13)

Economic Results:
- 35.6% IRR
- 3.3 : 1 ROI
- 3.3 yr Payout
- $5 MM PV10

The two curves side by side (I think they messed up the arrows):

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