FBR Capital on Eagle Ford: Predictable Nature of the Learning Curve Portends
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Price: $152.19 --0%
Rating Summary:
29 Buy, 25 Hold, 1 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 7 | Down: 5 | New: 25
Rating Summary:
29 Buy, 25 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 7 | Down: 5 | New: 25
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FBR Capital on Eagle Ford: Predictable Nature of the Learning Curve Portends
Material Revaluation Yet to Come
FBR analyst says, "We believe that the Eagle Ford asset base could ultimately be worth somewhere between $90 billion (base case) and $200 billion (upside case) to the industry. The base-case value largely reflects current IPs/EURs, activity levels, and margins. A key driver of the upper end of the range will be future learning curve or improvements in productivity. We believe that the market continues to not appreciate the statistical and predictable nature of the learning curve. Our analysis indicates that every doubling of cumulative wells drilled in other shale plays has yielded 15%–23% improvement in productivity as measured by increases in average 30-day production rate. At the current pace of drilling, the industry is set to double its Eagle Ford well count every 12–15 months. A 15% improvement in productivity increases single well NPV by 25% and has revaluation implications for the broader asset and underlying equities. Of our covered names, EOG Resources (NYSE: EOG)(Market Perform) and Chesapeake Energy (NYSE: CHK)(Outperform) have the highest exposure to the oil window, while Pioneer Natural Resources (NYSE: PXD)(Outperform), Petrohawk Energy (NYSE: HK)(Outperform), and Rosetta Resources (Nasdaq: ROSE)(Outperform) have the highest exposure to the wet window."
Material Revaluation Yet to Come
FBR analyst says, "We believe that the Eagle Ford asset base could ultimately be worth somewhere between $90 billion (base case) and $200 billion (upside case) to the industry. The base-case value largely reflects current IPs/EURs, activity levels, and margins. A key driver of the upper end of the range will be future learning curve or improvements in productivity. We believe that the market continues to not appreciate the statistical and predictable nature of the learning curve. Our analysis indicates that every doubling of cumulative wells drilled in other shale plays has yielded 15%–23% improvement in productivity as measured by increases in average 30-day production rate. At the current pace of drilling, the industry is set to double its Eagle Ford well count every 12–15 months. A 15% improvement in productivity increases single well NPV by 25% and has revaluation implications for the broader asset and underlying equities. Of our covered names, EOG Resources (NYSE: EOG)(Market Perform) and Chesapeake Energy (NYSE: CHK)(Outperform) have the highest exposure to the oil window, while Pioneer Natural Resources (NYSE: PXD)(Outperform), Petrohawk Energy (NYSE: HK)(Outperform), and Rosetta Resources (Nasdaq: ROSE)(Outperform) have the highest exposure to the wet window."
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