NGL discussion

I keep on harping about the importance of NGl's in the Jewell  gas stream and will quantify the point a little later on.

But first some basic understanding of natural gas is important so I have copied  and pasted a few paragraphs for a much easier explanation rather than attempting  to write it myself.

"A barrel of oil is a barrel of oil, but how much is an mcf of gas? Herein some basic facts about natural gas composition and measurement.

The first thing to remember: natural gas is measured by volume (cubic feet) but is sold based on its heating content (Btus).

A cubic foot of natural gas is the amount of natural gas that can be contained in a cube one foot on a side, at a certain standard temperature and pressure. But gas is not actually produced at a “standard” temperature and pressure. Temperature and pressure affect the amount of gas that can be contained in a one-foot cube. The higher the pressure, the more gas can be contained within the cubic foot of space. Conversely, the higher the temperature, the less gas can be contained in a cubic foot of space. So, when gas is measured, its pressure and temperature must also be measured. Its actual volume, at its actual temperature and pressure, can then be corrected to show what volume the same gas would have at a standard temperature and pressure. The volume at the standard temperature and pressure is the volume reported by producers to the Texas Railroad Commission, and is also the volume used to compute the price the purchaser will pay for the gas.

Gas is sold not based on its volume, but based on its heating content. Heating content is measured in British thermal units, or Btu’s.

One cubic foot of methane gas at standard temperature and pressure (60 degrees Fahrenheit and 14.73 pounds per square inch) contains exactly 1,000 Btus. So one thousand cubic feet of methane, 1 mcf, contains one million Btus, or one MMBtu. Gas is priced by the MMBtu. Gas sold at $5 per MMBtu, if solely methane, would sell at $5 per mcf.
But since natural gas is in fact usually a mixture of methane, ethane, propane, and other hydrocarbons, its Btu content often exceeds 1,000 Btus per cubic foot. Since natural gas is sold by the MMBtu, one must measure not only its volume but its Btu content. The Btu content of gas is measured by taking a sample and having it analyzed to determine its constituents of hydrocarbons. This is done periodically for each well, once or twice a year, since the hydrocarbon content of gas from a particular well usually does not change materially over time. “Rich” natural gas may have a Btu content of as much as 1,200 Btu’s per cubic foot or more. Some natural gas may also contain carbon dioxide, hydrogen sulfide, or other gases that reduce its heating value to below 1,000 Btus per cubic foot.

The Btu content of gas is usually expressed as MMBtus/mcf. Gas having a Btu content of 1,200 Btu’s per cubic foot has a Btu content of 1.2 MMBtus/mcf.

Once the heating value of gas is known, its volume can be easily converted to Btus. For example, if a well has produced 100,000 mcf of gas having a heating value of 1,200 Btus per cubic foot, the total MMBtu’s of gas produced is determined by multiplying mcf by MMBtu’s/mcf: 100,000 X 1.2 = 120,000 MMBtus.

For comparison, a barrel of oil contains approximately 6mcf gas  (depending on the constituency of the oil). Therefore, a barrel of oil is roughly equal in heating value to 6 mcf of methane. When companies report their production or reserves in “barrels of oil equivalent” or “boe,” they are converting their reserves of gas into barrels of oil on this 6-to-one ratio. Based on its heating content, methane is today much cheaper than oil. At the current price of natural gas, about $3.50 per mcf, oil would sell on a mcf-equivalent basis for $21 per barrel. "

Hopefully the above copy and paste job was useful.

Please note:


Very important point.. there is no general conversion between energy ( BTU) and volume ( Cubic feet)   so if a gas volume contains 2000 BTU, and  50% or 1000 BTU are removed, the gas volume does not decrease by 50%.



Back to BRK and trying to quantify the effect of NGL's in the BRK SWISH gas streams on well income and reserves.


So we have learned that 1 cubic foot (1cf) of pure methane gas ( dry gas)  contains  1oooBTU, but gas typically contains other " heavier " hydrocarbon molecules  carrying extra BTU's energy withing the same volume space.  The more  BTU's contained in the gas, the " richer" the gas , the more valuable the gas.  Typically ,the best way to extract that extra value from those heavier  molecules is to remove them from the " richer" , untreated or raw gas stream and then to further  separate or " fractionate" them into their various components in a refinery.

These processes are dictated by the profitability metric referred to as the “Frac Spread”. This is calculated as the difference between the revenue from sales of NGL’s contained in the gas stream as liquid and their value if left in the gas pipeline and sold at gas prices.
NGLs are composed of the following components:

• Ethane (C₂)
• Propane (C₃)
• Butanes (C₄) – Both normal and iso-
• Natural Gasoline – mix of pentanes (C₅) and heavier molecules (C₆ - C₉)

Each of those components have different prices associated with them.  

The current USA prices of the most common components are shown below.




As stated previously, BRK have guided that the base case production for the Jewell well was 1300 BOEPD, whereby 800 BOPD was oil, and 500BOEPD was the gas equivalent of 3  mmcfgpd.





Those numbers represent what  is actually produced at the well head, where the oil and raw gas are separated on the Jewell pad site by the permanent production facilities. The oil is trucked to the refinery  and the raw gas, which has had water and other " pollutants" removed is sent via pipeline to the gas processing facility.

BUT, that 3mmcfgpd stream has no quantification of the BTU's carried within it. As MCF is a volumetric measure,  3MMCFGPD pure methane and 3MMCFGPD liquids rich gas are identical in volume, but carry different MMBTU's, whereby the pure methane gas stream carries 1000BTU per cubic foot, but the "rich" gas stream can carry 1100 -1500 BTU per cubic foot...... and this is where the value add ( if the "Frac Spread" warrants ) is made.

In the latest announcement BRK  said it is now producing 1348 BOE,  83% liquids and 17% gas , where the liquids production  of 1123 barrels a day was made up of  808 barrels oil oil,  315   barrels NGl's  leaving 225 BOEPD gas which is equivalent to a 1.35MMCFGPD flow.
That NGL and gas flow is after processing the raw gas flow  where the say for example,  1400BTU per cubic feet was separated so that there was 1000BTU per cubic feet methane ( or there about) left as residual gas, and the 400BTU heavier molecules became the NGL liquids. However,  there's no information as to what the " raw" gas  production number flowing out from the well in the announcement was.

What we do know now is that when  a certain percentage of heavier molecule hydrocarbons are removed, there is a decrease in the volume of the residual gas that is not directly related to the number of MMBTU's removed. Gas Volume Shrinkage or  Extraction loss are the terms used to describe this process.

David was kind enough to confirm that the volume shrinkage of the gas was 40% after the removal of the NGL's.  

That made me a very happy camper

Because now we can work out what the Jewell well was producing in terms of raw gas from the well head, and compare that number to what BRK put out as it's base case number .

So as the gas " flow" post NGL separation was   1.35 MMCFGPD  ( or 225 BOEPD )  and this represents 60% of the raw gas that was sent to the plant . This means the raw gas production was 1.35mmcfgpd/0.6   or   2.25mmcfgpd. BRK predicted that the base case  gas flow from the well head would be 3mmcfgpd.... so there is still some room for production to grow to reach the base case, and if it does, we now can calculate what the " residual" treated gas rate, and the NGL's will be at that base rate to give us a potential IP24 if oil says at 808 BOPD.


The base case 3MMCFGPD flow will convert to a residual flow of 3 x0.6= 1.8 MMCFGPD or 300 BOEPD gas.
The NGL flow at the base case will be 3 x 140 = 420 BNGLPD

So if the Jewell reaches the modelled 3mmcfgpd, and the oil flow stays at 808 BOPD, the well will produce 808+420+300=1528 BOEPD with liquids being 80% and gas being 20% of the flow.

So a 1300 BOEPD oil and raw gas  flow  produces  1528 BOEPD oil, NGL and gas stream after NGL separation.

To quantify the value add of comparing a  3mmcfgpd methane gas flow vs a 3mmcfgpd " rich" gas flow, if gas is US$6 per MCF, and NGL's are 40% of the US$75 WTI price  ( US$30) as guided by BRK we have

1) methane gas stream   = 3000x US$6  =US$18000 per day

2) Rich gas stream after NGL separation  = 1800 x US$6 + 420  x US$30 = US$ 10800 +US$12600= US23400

The means there is a  US$5400 or 5400/1800 X 100= 30%  gain in revenue from the gas stream.

BRK having a NGL rich gas stream not only increases their production revenue by ~30% from the gas, but will also increase the value of their gas reserves by ~30% in the current commodity price mix.

It will be interesting to see if the NGl price received will be the 40% of WTI  predicted by BRK  as  for every dollar extra they receive for each barrel NGL,  their NGL revenue increases by 2.33% as compared to the pure gas stream.



Hopefully this post made some sense and was able to highlight  and quantify the importance of NGL's to BRK

Thanks for reading


Cheers

Dan