What is the breakeven price of a play? And what does it take into account, besides land, seismic, drilling and completion costs? What about the time value of money, and lost-opportunity costs if a company had drilled somewhere else or made that acquisition instead? At least temporarily, the spread between profitability and not has narrowed for nearly all commodities around the world, not just oil and gas, but we think that can't last long-maybe six months at the most. Meanwhile, Calyon Securities' E&P analyst, Carin Dehne Kiley, recently calculated the Nymex gas price needed to generate a 10% after-tax rate of return (a modest return) in three popular areas attracting lots of rigs today: the U.S. Rockies, Western Canada and the various shale plays. Assuming a 10% increase in 2005 per-unit F&D costs, operating expenses and overhead to approximate current costs, and adjusting for basis differentials in each region, she found that the Nymex price required in the Rockies is roughly $7.80 per MMBtu, some $7.35 in Canada, and $6.40 in the shale plays (including the Texas Barnett Shale, Oklahoma Woodford and Arkansas Fayetteville). The equivalent composite spot prices would be $7.30 per MMBtu, $6.85 and $5.90, respectively. Her long-term forecast is $7 per MMBtu. For more on this, see the November issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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