"Gulf of Mexico shelf gas producers are at the greatest risk of not staying afloat of current natural gas prices. “If you aren’t getting $5 an Mcf, you should not be drilling any Gulf of Mexico (shelf) projects,” says Rehan Rashid, managing director and head of energy and natural resources research for FBR Capital Markets, a unit of Friedman, Billings, Ramsey & Co. Inc.
“Stick with the purest shale players and avoid producers in conventional plays, such as the Gulf shelf,” he says."
"Which shales plays have stronger odds if service costs decline? At the current cost of oilfield services and at $4.50 gas prices, the Haynesville, Marcellus, Fayetteville, Barnett and Woodford shale plays have single-well internal rates of return ranging from 25% to 75%, according to Rashid.
If service costs decline 40%, the single-well IRR at $4.50 gas improves to 400% in the Haynesville; more than 300% in the Marcellus; more than 250% in the Fayetteville; more than 150% in the Barnett; and 100% in the Woodford.
Canonica says the gold-rush mentality in the U.S. gas industry these past few years led to 8% growth in gas production in 2008. “This happened to coincide with the worst financial crisis in decades. The result: Futures have dropped to less than $4 per million Btu from nearly $14.”
The current breakeven price is $2.88 in the Haynesville; $3.16, Pinedale; $3.60, Fayetteville; $4.00, Marcellus; $4.02, Piceance; $4.04, Barnett; and $4.55, Woodford.
“Current spot prices are not supporting drilling in most unconventional plays. But forward prices have not dropped below breakeven costs in some of the star plays,” Canonica says."
At the moment it's pretty clear that the supply of natural gas in North America and elsewhere on the Globe will exceed demand into the foreseeable future. Not at all good for gas producers, but it is great for nitrogen fertilizer producers such as Yara, Terra and CF Industries, power generators and equipment suppliers e.g. Foster Wheeler, Wärtsilä and Exterran.
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