Economic Evaluation of Bowland Shale Gas Wells Development in the UK

The UK has had its fair share of the shale gas
revolutionary waves blowing across the global oil and gas industry at
present. Although, its exploitation is widely agreed to have been
delayed, shale gas was looked upon favorably by the UK Parliament
when they recognized it as genuine energy source and granted
licenses to industry to search and extract the resource. This, although
a significant progress by industry, there yet remains another test the
UK fracking resource must pass in order to render shale gas
extraction feasible – it must be economically extractible and
sustainably so. Developing unconventional resources is much more
expensive and risky, and for shale gas wells, producing in
commercial volumes is conditional upon drilling horizontal wells and
hydraulic fracturing, techniques which increase CAPEX. Meanwhile,
investment in shale gas development projects is sensitive to gas price
and technical and geological risks. Using a Two-Factor Model, the
economics of the Bowland shale wells were analyzed and the
operational conditions under which fracking is profitable in the UK
was characterized. We find that there is a great degree of flexibility
about Opex spending; hence Opex does not pose much threat to the
fracking industry in the UK. However, we discover Bowland shale
gas wells fail to add value at gas price of $8/ Mmbtu. A minimum gas
price of $12/Mmbtu at Opex of no more than $2/ Mcf and no more
than $14.95M Capex are required to create value within the present
petroleum tax regime, in the UK fracking industry.

Authors:

• Elijah Acquah-Andoh

Keywords:

• Capex
• economical
• investment
• profitability
• shale gas development
• sustainable.

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