Wednesday, April 24, 2013

Favorable Drilling Costs: Natural Gas Plays EQT Corp and Range Resources

Energy exploration companies are shifting drilling toward resources with greater potential for oil and natural-gas liquids. Nonetheless, investors willing to stick with more junior, natural gas plays could be handsomely rewarded in coming years, as drilling efficiency improvements are dramatically lowering breakeven prices – leading to improvements in operating margins.

The cost of capital required to break-even on drilling varies from one project to another, depending on shale geology, subsurface pressures, and infrastructure status (access to pipeline and gathering services). For example, prices currently average about $215 per drilled foot in the San Juan Basin of New Mexico, compared with $287 per drilled foot in the nearby Permian Basin section of West Texas. Against this backdrop, some U.S. natural gas companies, such as EQT Corp. (EQT-$68.58) and Range Resources (RRC-$75.19), are favorably positioned to outperform their peers and show improvements in Return on Invested Capital due to prudent investments in promising onshore assets and drill-bit technologies.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

No comments: