Monday, January 30, 2017

Long Laterals

In case you missed it, Goodrich Petroleum posted a good presentation outlining the company's strategy to return from the abyss (it exited bankruptcy in October 2016).  Goodrich will be focused on the Haynesville, taking advantage of the newest technologies to most cost effectively squeeze gas from our prolific play.  Of particular interest in the presentation is a graphic showing recent long laterals that have been drilled.

While the total amount of activity has declined in the Haynesville over the past several years, the technological progress has not.

Monday, December 5, 2016

Chesapeake Sells a Slice of the Play

Chesapeake Energy announced this morning that it has agreed to sell an acreage package to Indigo Minerals for $450 million.  The assets are in Louisiana and include approximately 78,000 net acres with 250 wells currently producing around 30 MMcf/day.  CHK categorizes 40,000 of these acres as core.  The company is also marketing another 50,000 acres in Louisiana, which will leave it with approximately 250,000 net acres considered core.

There are few public details about the location of the assets involved in the transaction, but the deal is part of a larger attempt to reduce the company's debt by selling assets.  The company has long been burdened by excessive debt leftover from the gun slinging ways of former CEO Aubrey McClendon tied to the many complex financial transactions that fueled his land grab along with low gas and oil prices.  It's a long slog towards stability, but these are necessary steps along the way.

Wednesday, November 16, 2016

Gas in the Time of Trump

It's been interesting to watch the world react to the prospects of a Trump presidency over the past week.  Like him or hate him, the one constant is that nobody knows what the hell he will do.  We've elected the ultimate wild card.  Much has been said over the past week about his impact on natural gas, and all I can say is "who knows?"  I personally believe the Pragmatic Trump will emerge, but I feel that I would have the same luck with my predictions at the horse track.

First, it must be noted that natural gas over the past decade is the quintessential American story.  Ingenuity and persistence led to new technology, which opened up vast reserves of gas.  Entrepreneurs rushed in to exploit the myriad of opportunities.  All that work led to a structural oversupply of gas, which tilted the market and suppressed prices.  Low prices "culled the herd" of entrepreneurs but simultaneously impacted other markets, specifically coal-fired power and LNG.  Cheap gas tipped the scales in the power market from coal towards gas (let's be perfectly clear:  George Mitchell did more to "kill coal" than Obama ever could have) and vast amounts of capital have been invested in terminals to export natural gas.  And then it really got messy.  But the bottom line is that we in the U.S. have an enormous natural gas resource that should be a force for economic good in this country.

Friday, November 4, 2016

Rig Count 40% Above Recent Lows

U.S. rig counts have seen a pretty strong recovery since late spring/early summer.  Oil rigs have risen by 134, or 42%, from the historic low spot in late May, while gas rigs have increased by 35, or 43% over the same period.

While the percentage increases seem high, the actual rig count is still quite low by historical standards.

Wednesday, November 2, 2016

Covey Park on a Buying Spree

Covey Park Energy announced today that it has acquired another chunk of Haynesville Shale acreage. The private equity-backed company bought 139,000 gross (90,000 net) acres in Panola, Nacogdoches and San Augustine Counties, TX and Desoto, Bossier and Sabine Parishes, LA.  Average net production is 35 MMcf/day, so the purchase is clearly more about future value than current income.  Covey Park now owns 321,000 gross (218,000 net) acres in the Haynesville Play, with total proved reserves of 2.5 Tcf.

Friday, October 14, 2016

Welcome Back, Goodrich

On Wednesday, Goodrich Petroleum announced that it is exiting its Chapter 11 bankruptcy and has $20 million to spend to restart its Haynesville Shale drilling program.  The company didn't elaborate with specifics on how it plans to spend the money.  It's unlikely $20 million buys a lot, even with suppliers probably offering generous terms, but at least it's a start.  Godspeed Goodrich!

Friday, July 29, 2016

U.S. Rig Count: So, I Guess That's Bottom?

Rig count is usually a lagging indicator of change in the energy market, but it tends to be a pretty accurate reporter of business attitude, if a little in retrospect.  Looking at this week's U.S. rig count, it seems to be on the upswing from its nadir in late May (404 total rigs).  I'm not equipped to call it a bottom, but it looks like one to me.

Today, Baker Hughes reported 463 operating rigs, a 14.6% increase from that low point two months ago.  Of that increase, most of it is oil rigs (up 58, or 18.4%), as opposed to gas rigs (only up 4, or 4.9%).  Not really unexpected.

With the gas storage oversupply situation loosening up a bit, gas prices are now in the $2.80/MMBtu range after spending much of 2016 around or below $2.  So at least things are looking up.  So will we see a similar rise in gas rigs?  Probably not in the near term.  Gas-centric firms are more concerned with staying alive than spending capital on new drilling.  It's hard to underestimate the damage done to the natgas independents.

Thursday, July 28, 2016

Like Looking in a Mirror

It's funny how history has a tendency to repeat itself, although sometimes it is more of a reflection than a retracing of steps.  As the air (gas?) is slowly releasing from the inflated natural gas storage numbers of the past year, it's interesting to see how it is almost a perfect reflection of the gradual buildup of gas in storage from a large deficit two years ago.  

The chart shows the deviation from the five year average for each current year, and the declining surplus this year (red line) is almost exactly matching the 2014 storage build (light blue line).

Tuesday, June 21, 2016

2015 Natural Gas Flows

I love the EIA because they produce cool things like this (here is link to original):

What this says to me is that shale wells have become the largest single source of natural gas in the country.  It also shows that the uses for gas are pretty well diversified, but the largest source of consumption (electric power) is highly variable depending upon weather and economic conditions.  Still, it's a lot prettier picture than the same for coal:

Thursday, June 16, 2016

Storage Situation Improving...Slowly

With the EIA's announcement this morning that working gas in storage was up 69 Bcf to 3.041 Tcf, the gap between the current storage level and the five year average narrowed for the tenth consecutive week.  After reaching a high of 54.1% above the five year average on April 5, the deviation has slowly dropped to 30.1% with a series of below average injections.

While things are improving for gas, we still have a long way to go before the storage situation takes pressure off prices.  Come October we likely will be looking at another record or near-record storage year.

Friday, May 13, 2016

EXCO to "Explore Strategic Alternatives"

EXCO Resources announced last night that it is forming a special committee of the board of directors to among "other things, assess the Company’s operating and financial situation and to evaluate, develop and recommend one or more strategic alternatives."

Often, the market reacts positively to the phrase "exploring strategic alternatives" because it is usually code that the company is putting itself up for sale.  Or, as in this case, the market barfs because it means that the company is in worse shape than previously believed.  So far this morning, the stock has dropped more than 35%.  But XCO had been on a good run this week, so it's really just going down to the price where it had been for the past couple of months.  In any case, the news was jarring and will take a little while to be "priced into" the stock.

What's next is anyone's guess, but no gas-centric E&P company can stay in business with natural gas holding at $2/MMBtu.  The new chairman is a deal maker and the board is stocked with investors, so I suspect EXCO's days as a surviving independent are numbered.  Coming up, there will be pain. The question will be who will bear most of it.

Tuesday, May 3, 2016

The Shut-Ins

I was perusing some data from the Louisiana DNR this morning when I noticed that a handful of Haynesville wells were classified as "shut-in dry hole," so I dug a little deeper and saw that between April 20 and 28, 22 Haynesville wells had been reclassified as shut-in.  While alarming at first, I figure this is more of an administrative move since nearly all of the wells are ALT wells to successfully operating wells.  Most had been drilled and were in some form of completion.  Several had already been completed and turned to sales.  One exception was the Debroeck 4 well, which was abandoned in 2010 and is in process of being plugged and abandoned.

Here is the list of wells reclassified as shut in during the last week of April 2016:

Monday, April 18, 2016

Keep Your Eyes Trained on the Horizon

I always try to keep the big picture in mind, even when things look dark, and one of the important driving factors for increased natural gas consumption is the addition of gas-fired power generation.  The EIA expects 2016 to be the first year that gas drives more electrical power than coal.  Think about it - what an incredible transition in less than ten years.  That trend will continue as older coal plants are retired and new gas generation is added.

The EIA published the map below last week showing 18.7 gigawatts of natural gas generation expected to be added between 2016 and 2018.  As one might expect, the largest additions are places with proximity to gas (i.e. the Marcellus region in the northeast and Texas and Louisiana near the Haynesville).  Also encouraging is the capacity additions in population growth areas of California and Florida that are not close to the shale boom.

Goodrich Petroleum: Another One Bites the Dust

I've become so immune to smaller independents going bankrupt that when I read about Goodrich filing Chapter 11 last week, my first thought was, "didn't that already happen?"  Apparently I was thinking of GMX Resources.  Or Sabine.  Or Samson.  Or Penn Virginia.

The final collapse of Goodrich seems quite orderly, as debt holders (who are mostly hedge funds and private equity vultures who bought the debt at a steep discount) will convert their debt to equity to own the company and wait for some sort of recovery in the energy market.

Smart money wins again.

Monday, March 21, 2016

Bye-Bye EP

Looks like another one bites the dust.  EP Energy, the old El Paso (Energy, not taco mix) quietly disclosed in an SEC 8-K filing last Friday that it had sold its Haynesville interests for $420 million to Covey Park Gas, LLC.  Covey Park is a private equity funded company formed in 2013 presumably to feast on the downturn in the natural gas market.

No press release?  Why the secret?  Timing it on a Friday under the cover of darkness?  Seems like what they do in D.C.  Here is the brief SEC disclosure:
"On March 18, 2016, subsidiaries (the “Sellers”) of EP Energy Corporation (the “Company”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Covey Park Gas LLC (the “Buyer”). Pursuant to the Purchase and Sale Agreement, the Sellers have agreed to sell to the Buyer substantially all of their assets located in the Haynesville and Bossier shales. The total consideration to be received by the Sellers pursuant to the Purchase and Sale Agreement is $420,000,000 in cash, subject to customary adjustments for this type of transaction. The Buyer delivered into escrow a deposit of $21,000,000 in connection with the execution of the Purchase and Sale Agreement. The transaction, which has an effective time of November 1, 2015, is expected to close in the second quarter of 2016, subject to certain customary closing conditions. The Purchase and Sale Agreement contains representations, warranties, covenants and indemnification customary for this type of transaction. The Purchase and Sale Agreement provides the Sellers and the Buyer certain termination rights, including if closing has not occurred by July 1, 2016 or if the downward adjustments to the purchase price pursuant to casualty losses, title defects and environmental defects, in the aggregate, exceed 10% of the base purchase price."

Thursday, March 3, 2016

Aubrey McClendon - The End of an Era

I can't stop thinking about Aubrey McClendon.  Yesterday, I wrote that his indictment by the Department of Justice felt a little like the line of a circle coming back around, but upon hearing of his death I feel instead like it's the end of an era.  He symbolized the shale revolution:  the embrace of new technology, the gun slinging risk of the scrappy independent and the ability to succeed where others had not dared to try.  Aubrey didn't invent the shale gas industry, but he put it on the front page.

For years, I couldn't help but think about Aubrey.  Here was this larger than life character, an old fashioned wildcatter who was at the leading edge of a revolution.  His company, his lifestyle, his guts and of course his glory were painted all over shale gas.  Around 2009, I contemplated creating a character called Fake Aubrey based on Fake Steve Jobs, where I could opine daily on the gas industry and life in general in the caricatural voice of a swaggering, egotistic oil man.  I gathered a bunch of research, but I never got around to writing it.  Although Aubrey was a distant public figure, I had this odd feeling that he was a part of my life and the whole thing just felt wrong.

I'm sure there will be a lot said in the media today and in coming weeks about Aubrey.  At this point we can speculate about how the crash happened and probably draw similar conclusions, but that should not diminish his legacy.  He will remain the second most important figure in shale gas (George Mitchell will always be #1).  He was the classic Type A businessman that pushed the envelope to build his business and an entire industry in lighting speed.  It was fast and messy, as one might expect in retrospect when you combine transformational technology with a highly cyclical industry, but he led America back into a leadership position in world energy production. He took people on a roller coaster ride and made a lot of them rich along the way.

Aubrey's era was probably already over before he died.  The investors, lawyers and accountants long ago took over from the swashbucklers at the energy independents.  Another golden age of independents has passed for now, but when they return - and they absolutely will at some point - the memory of Aubrey McClendon will rise with them.  Love him or hate him, he will not soon be forgotten.

[3/4/16: has a nice, balanced piece on Aubrey (may require registration)]

Holy Crap: Gas in Storage Only Down 48 Bcf Last Week

Do you want to see what trouble looks like in three pictures?

 As you may remember, 2012 was a terrible year for natural gas, as storage soared and prices set new lows all year long.  This does not look good.

Wednesday, March 2, 2016

Aubrey Indicted

The Justice Department yesterday indicted former Chesapeake Energy CEO Aubrey McClendon for violating anti-trust statutes.  The DOJ alleges that he conspired with another unnamed company to decide beforehand who would bid for certain leases in northwest Oklahoma between 2007 and 2012 to avoid a bidding war to keep the lease bonus prices down.  Down the road, the two companies would split the leases.

This feels a bit like a full circle for me:  Aubrey and Chesapeake were the ones who first shined a bright light on the Haynesville Shale and sparked more than a few lease bidding wars.  I'm sure competing companies that had to pay large Haynesville bonuses feel more than a little schadenfreude that the man who may have torpedoed the economics on many Haynesville leases got caught suppressing lease bonus prices elsewhere.

It appears that Chesapeake cooperated with DOJ and does not expect to be charged, probably furthering the ill will between Chesapeake and its co-founder.  Not sure about unnamed Company B, which is also based in OKC.  I haven't seen that they've been identified yet, but it won't be that hard to figure out.

Thursday, February 25, 2016

A Tale of Three Years

This is a train wreck we've seen coming for a couple of years now...

Friday, February 5, 2016

The Hits Keep Coming: US Gas Rig Count down 17 to 104

The BHI U.S. natural gas rig count was down big this week, dropping 17 to 104.  A 14% drop in one week!  Over the past 10 weeks, the count has plummeted 88 rigs, or 46%, from what was already a record low (at least since the late 80's).  The overall count was down 48 rigs, as oil rigs declined by 31, but percentage-wise, that was only 6%.  Only six percent - it's amazing what happens when you continually reset your expectation downward.

Friday, January 29, 2016

Gas Rigs Keep Falling Away

Today's BHI natural gas rig count was down six to 121, but over the past five months, the gas rig count has dropped by 90, or 43% from levels that were already record lows (at least since the BHI count was initiated in 1991).

Friday, January 8, 2016

Watch the Line as End of Injection Season Trips up Storage

I know, I know, I told you I am not going to keep updating the site going forward, but I couldn't resist sharing the new year's working gas in storage chart.

Track the light blue line (2014) go through the year as the polar vortex creates a big deficit in the spring and summer.  That winter, prices spiked upwards but drifted back downwards during the year.  But as the year went along and the storage line eventually hits the gray bar signifying the end of the injection season in November, it hiccups and starts rising rapidly.  Then go back to the left side as the light blue line becomes the dark blue line (2015).  At this point, prices are dragging downward.  The dark line tracks the five year average line (gold) until it hits the gray bar in November again and then drifts upwards as the injection season goes long with the warm end of year weather.  Boom, we see the lowest gas prices in a couple of decades.  Shift back to the left and see the red line (2016) now floating way above all of the other lines.  Where it goes from here will be a major determinant of what happens to prices going forward.

That's a succinct explanation of what has been going on with storage and how it directly relates to the change in prices over the past couple of years.

Friday, January 1, 2016

U.S. Rig Count: -2 to 698

The Baker Hughes U.S. rig count was down two this week to 698.  Oil rigs were down two to 536 while gas rigs were unchanged at 162.  By type, horizontal rigs were down five to 549, vertical rigs were up three to 89 and directional rigs were unchanged at 60.  Among gas rigs, horizontal rigs were down one to 128, directional rigs were up one to 22 and vertical rigs were unchanged at 12.