icn - dyor - understanding shale & lng

Generally speaking investors (not punters) would fall into two groups – those primarily driven by “Quantitative Analysis” and those driven by “Qualitative Analysis”. No prize for guessing I fall into the former. That’s not to say Qualitative Analysis (stuff that is subjective such as management expertise or community relations, industry cycles, government,...) isn’t important because it is, but it also drives most conspiracy theories and a heck of a lot of subjective interpretation of what was said (or not said) in company announcements.

This is a VERY VERY LONG post of some information that we all have access too. Some is very Quantitative and some is qualitative.

So let’s begin with Unconventional Shale Gas is new in Australia. Not so in the USA. In a previous post (the roadmap) I provided a link to the following

http://www.petroleum.pir.sa.gov.au/__data/assets/pdf_file/0006/170889/Combined_doc_19_April.pdf

from which this table is sourced – comparing the Cooper Basin with large producing American shale basins.

For a very detailed study and comparison of Barnett and Marcellus Shales please refer to this document.


http://www.netl.doe.gov/technologies/oil-gas/publications/brochures/DOE-NETL-2011-1478%20Marcellus-Barnett.pdf

It is very detailed and quite technical but what you should be reading is Sections 5 and 6. That is all about fracture stimulation AND most importantly how they flow and decline and the economics of those plays.

It's the economics that got the US Shale gas inductry into trouble - everything was grand at $14Mcf Henty Hub gas price - not so grand at $3Mcf.


TO REALLY REINFORCE THIS, this article from the Economist is worth you while reading.

http://www.economist.com/node/21558456

For example .." Cheniere’s export deal is ground-breaking in one respect. The company has agreed to sell American gas to a number of shippers, including BG Group and Fenosa, at Henry Hub prices with a 15% mark-up and liquefaction fees of $2.15 mBtu. Its destination is likely to be Asia, explicitly linking prices in the two markets. After transport and regas costs, the price will probably be around $10 mBtu, still significantly lower than the $16 for oil-indexed gas. Even if American gas prices were to go up to $4-5, there would still be money to be made..."


ICN is long term with many of the important factors left to be figured out (but we have a GSA with Tapis linking price for 20yrs & 2.2 Tcf provided we can get those 2P Reserves).

We don't know what the real F&D cost per Mcf is for our gas yet, or the LOE (especially the pipeline transportation) or the available capacity and the liquifaction cost.

That's why the Netback becomes so important a calculation - and why I think $3Mcf is reasonable as a starting point because 75% of the "selling price" could be used up in finding the gas and getting it into LNG.

Remember, the GAS is LNG and not Gas so we should be OK.

Here is a link to QLD Gov't review of gas demand through to 2030.

http://www.energy.qld.gov.au/documents/energy/25-43_2011_Annual_Gas_Market_Review_Web-2.pdf


Lots of work for ICN and BPT to do - I'm not expecting price spikes like others but more of a steady appreciation as milestones are delivered.

After all ICN & BPT have said the following:

Of course a trader/punter could care less about the above - I'm not one of those.

GLTA.