The chart shows the results of the sensitivity analysis on a tornado chart. Red bars are associated with the increase of certain parameters, whereas blue bars are associated with the decrease of certain parameters. For some parameters, such as basis differential, an increase of parameter would lead to an increase of full-cycle cost. For other parameters, such as NGL price, an increase of parameter would lead to a reduction of full-cycle cost.
The analysis was performed based on 2018–2019 cost, price, and productivity data.
The order of factors affecting Montney Alberta full-cycle cost is very similar for other plays in Western Canada, such as Montney BC South, Montney BC North, and Duvernay; however, actual full-cycle cost can be slightly different.
The most important factor affecting full-cycle cost in Western Canada is the exchange rate. However, the exchange rate cannot be controlled by producers and it is unlikely that the exchange rate will change ±20% within a short period of time. The second most important factor is a well’s raw gas initial productivity (IP), which affects the estimated ultimate recovery (EUR). If IP is increased by 20% compared to base IP (an average of 3.5 million cubic feet per day (MMcf/d) for Montney Alberta), full-cycle cost would be reduced by 0.31 USD. However, in most cases, growth of IP would lead to increased F&D cost.
Another important factor affecting Western Canada full-cycle cost is basis differential. The average basis differential to Henry Hub or Montney Alberta is 1.25 USD, compared to 0.42 USD in the Marcellus. Since Montney Alberta is a liquids-rich play, full-cycle cost is affected by NGL prices. The average Edmonton condensate price in 2018 was 61.28 USD, while the average butane price was 26.17 USD and the average propane price was 20.91 USD. An increase of NGL prices would lead to an increase of liquids uplift and a reduction of full-cycle cost. An increase of condensate price by 20% would lead to a reduction of full-cycle cost by 0.23 USD.
The effective royalty rate in Western Canada is 9.3%. It is calculated based on average royalties for 30 major producers operating in the region for 2018. Low royalties are the function of low gas prices in Western Canada. Full-cycle cost is not very sensitive to the changes in either royalties or G&A expenses.