Marcellus Has Lower Supply Cost, But Montney Boasts Higher Netbacks

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Producers in the Marcellus shale gas play in the U.S. Northeast enjoyed a $3.65-per-boe supply cost advantage over operators in the Montney tight gas play in northeast British Columbia in the second quarter.

But the liquids-rich Montney produced higher netbacks of $18.30 per boe during the quarter versus average netbacks of $15.07 per boe in the Marcellus, where production was 82 per cent gas compared to 64 per cent in the Montney.

Those are among the findings of a benchmarking study — from JWN's Daily Oil Bulletin and CanOils, and sponsored by Halliburton — comparing North America’s two fastest-growing gas plays.

Bill Whitelaw, president and CEO of JWN, presented the results at a recent Canadian Society for Unconventional Resources (CSUR) conference on the Alberta Montney.

Using its CanOils database, JWN compared nine Montney producers with seven Marcellus players. Results are based on financial and operating data for the second quarter of this year and the corresponding 2016 period.

Results for the U.S. companies were converted from U.S. dollars for the study.

The nine producers used for the Montney study are Advantage Oil & Gas Ltd., ARC Resources Ltd., Birchcliff Energy Ltd., Delphi Energy Corp., Kelt Exploration Ltd., Paramount Resources Ltd., Painted Pony Energy Ltd., Seven Generations Energy Ltd. and Storm Resources Ltd.

The seven Marcellus producers are Antero Resources Corp., Cabot Oil & Gas Corp., Eclipse Resources Corp., EQT Corp., Range Resources Corp., Rex Energy Corp. and Rice Energy Inc., (Rice Energy is being acquired by EQT Corp.)

The study benchmarked full-cycle supply costs based on finding and development costs, operating and transportation expenses, general and administrative costs and interest expenses.

It should be noted that among the companies in the study, there was a large variation in supply costs with some Montney producers having lower costs than Marcellus operators.

Marcellus supply cost advantage

Both Montney and Marcellus operators continued cutting costs and improving productivity year over year, with Montney supply costs falling by 13 per cent and Marcellus costs declining by seven per cent.

Operators in each play face different cost structures. For example, Marcellus producers have low operating costs as most of their shale wells produce dry gas, but they have high transportation costs due to insufficient takeaway capacity.

In the Montney, meanwhile, operating costs are higher partly due to high liquids volumes, but transportation costs are less than half those in the Marcellus.

Montney operators also have lower general and administrative costs compared to Marcellus players, although that gap has narrowed rapidly in the past year as operators in the Marcellus cut G&A expenses by one-third.

But with better access to public markets, Marcellus operators carry less debt than their Montney counterparts, but operators in both plays cut debt and interest payments significantly in the last year.