A New Way to Method for Determining Value of Shale Acreage and Value of Operating Companies1

Credit Suisse recently developed an algorithm nicknamed “SAM” to analyze large amounts of data from shale production. This tool assesses the value of the shale mineral acreage and of operating companies for those fields.  Credit Suisse claims their SAM analyzes oilfield data by dividing producing shale acreage into 10×10 mile sections and then incorporating current production, drilling, and completion data.

Credit Suisse’s algorithm supports the following conclusions:

  • The Midland, Delaware, STACK, and Haynesville plays have the highest acreage values ($/acre).
  • Values are Improving in the PRB and Bakken.
  • The Permian basin has driven the greatest positive change in equity value of companies operating within.

Credit Suisse’s chart below compares the Total Recoverable Resources of major oil and gas plays from around the world.  Of interest is that the Midland and Permian basins are very comparable to Saudi Arabia’s reserves. 

Crude Oil Outlook

While futures markets aren’t a crystal ball, their price levels and related options are useful for estimating future ranges, or “confidence intervals,” for crude oil and natural gas prices.

The graphic below shows crude oil price as of September 15, 2017 and predicted crude oil prices based on options on oil futures contracts (ticker /CL).

On the graphic below, the blue lines are within one standard deviation (σ) of the settlement price (green line) and the red lines are within two standard deviations for each month (for a refresher on standard deviations, see the January 2016 blog).

Based on September 15, 2017, pricing, the futures markets indicate that in mid-October 2017 there is about a 68% chance that oil prices will be between $46.50 and $54.00 per barrel. Likewise, there is about a 95% chance that prices will be between $41.50 and $59.00.  For a longer-term view, by mid-December 2017 the +/- one standard deviation price range is between $44.00 to $58.50 per barrel with an expected value of $51.00.

Natural Gas Outlook

We can do the same thing for natural gas futures, currently trading at $3.02 per MMBtu on the Henry Hub (ticker /NG).  Although more affected by seasonal factors than crude oil, in October 2017, the expected price is $3.08 with a +/- 1σ price range of $2.75 to $3.45 per MMBtu, and the 2σ range (95%) of $2.45 to $3.95 per MMBtu.  For a longer-term view, by mid-December 2017 the expected price is $3.33 per MMBtu with a +/- one standard deviation price range is between $2.75 to $4.25 per MMBtu.

1. A New Algorithm to Draw Shale E&P Conclusions From 1 Million Data Points. Ideas Engine Series. Credit Suisse. June 1, 2017

Tags: Oil & Gas Price Outlook September 2017, Gas Price Outlook September 2017, Oil Price Outlook September 2017

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