Tuesday, October 21, 2008

Petrohawk Announces Results of Third Haynesville Well

Petrohawk has hit another gusher in the Haynesville Play. In a press release today, the company announced results from its third Haynesville well, the Hunt Plywood 36 #11H, located in Section 36, Township 15 North, Range 13 West. The well was placed on production at a rate of approximately 17.0 Mmcfe/d, on a 22/64" choke with 7,225 pounds flowing casing pressure. The well has averaged 15.4 Mmfe/d over the first 30 days of production. That compares favorably with the company's results on two previous wells.

More from the Petrohawk press release: "The Company's first operated Haynesville Shale well, the Elm Grove Plantation (EGP) #63H, has produced for approximately 100 days and has averaged 8.8 Mmcfe/d over this period. Petrohawk's second operated well, the Hutchinson 9 #5H, has been on production for approximately 67 days and has averaged 14.6 Mmcfe/d over that time period. Several additional Haynesville Shale wells are currently being completed.

"The Company has instituted a "pre-drill", or spudder rig, program in the Haynesville Shale designed to accelerate the pace of drilling. Ten operated horizontal rigs are currently drilling in the play as well as five spudder rigs. Petrohawk expects to exit 2008 with twelve operated horizontal rigs drilling in the play. To date, the Company has drilled through the Haynesville Shale in a total of 16 wells. The added well control has shown the Shale to be consistently thick and with excellent reservoir quality in all of these wells. With the drilling program currently in place, Petrohawk estimates that approximately 18 wells will be on production prior to the end of the fourth quarter out of a total of 26 wells drilled through the Shale section by the end of the year."

The company also announced the discovery of a new shale find in south Texas called the Eagle Ford Shale in LaSalle County. They have drilled two wells there, one producing the other soon to go on line.

Monday, October 20, 2008

Bonuses Not Going Up Any More

With all of the chaos on Wall Street and the pressure on the natural gas drilling companies, you have seen lease bonuses peak in the Haynesville Play. They won't go back to zero, but the daily news of the next rich bonus is over. At least for a while.

While it hasn't been stated, the writing is on the wall. Chesapeake Energy cut back approximately 25% of its leasing staff. Petrohawk, Chesapeake and others are scaling back their capital expenditures. They need to drill the leases they have to hold them, so, while they may want more land, they can't take down more than they can drill in 3-5 years. The pressure is on from Wall Street to show returns for all of the eye popping leases these companies have signed. With the price of natural gas hovering below $7, the pressure is doubled.

This isn't doomsday, but most of these companies are moving from the leasing phase to the drilling phase. There will be new leasing, but it won't be making the headlines.

Friday, October 17, 2008

Takeover Fears

What a crazy few weeks this has been. To me, the news is a little better this week, but some of the big gas E&P companies aren't feeling good vibes just yet. As noted earlier, Aubrey McClendon had to sell approximately 94% of his stock to meet margin calls. Additionally, XTO's CEO Bob Simpson had to sell 2.1 million shares (30% of his holdings) and the CFO Lewis Baldwin had to sell 535,700 shares (33% of his holdings) for the same reason.

The news this week is that some of the big Haynesville Play companies are reacting to concerns about being involuntarily bought out by rivals. While some companies have been rumored to be on the market for a long time (i.e. Petrohawk), other companies are vulnerable because of their suddenly very low stock prices. Today, Chesapeake was in the news saying that a buyout is unlikely and yesterday Petrohawk adopted a "Stockholders Rights Plan," which is one way for a company to defend itself against an unwanted corporate takeover.

I believe that market forces are very much aligned against corporate takeovers because of the poor credit market (it's hard to pay cash for a company unless you already have lots of excess cash in the bank) and because many of the would be acquirers have depressed stock prices themselves (making it hard to buy a company for stock). But there are people out there with piles of cash and ready access to bank loans, including private equity companies and some of the larger integrated oil companies, so a takeover bid is not out of the question. It's just that a company like Petrohawk would rather have seen a takeover bid when its stock was trading at $48 than when it is trading at $12.

Friday, October 10, 2008

Holy Shit!!!

Pardon the low grade French, but it's been an awful week/month for the stock market and an even worse one for natural gas stocks. I'll not delve into the details because there is too much blood on the floor, but suffice to say that the price of natural gas is down and the values of the gas E&P companies are down much more.

The price of natural gas dipped below $7 (the spot and futures are a hair over $6.50 as I write this), so the gas stocks are getting pummeled. The $7 figure has been tossed around as the point where expensive horizontal drilling becomes economical. Below that there is not as much reason for the gas companies to risk too much capital to drill (except to hold a lease). This past month has been a death spiral for the gas stocks, exacerbated by the falling price of gas, the crappy overall market conditions and the activities of traders and short sellers who are causing severe swings in the gas stocks.

The news that prompted my headline en Francais is a press release I noticed that acknowledged that Chesapeake Energy CEO Aubrey McClendon had to sell "substantially all" of his CHK stock. He made, sold and consumed the Kool-Aid and was a big buyer when the stock was in the $50's (it closed at $16.52 today, dipping as low as the low $12's today, after peaking several months ago around $74). This man was a billionaire based on his CHK holdings and was buying stock in multiples of hundreds of millions of dollars this year. Being that much of a believer probably prompted much of the gold rush in the gas stocks we witnessed this past spring and summer. To be forced to sell most of his stock (the exact amount was not disclosed today) has to be devastating to McClendon, who was Cowboy In Charge of the Natural Gas Movement. He is in no way a poor man now (he sold the stock - he didn't lose it), but hubris can be a bitter pill.

Where do we go from here? I have no clue. Pray for a cold winter, I guess, to see a spike in natural gas prices. I think over time the call for domestically produced energy and the calming of the markets will see gas prices rise and stabilize somewhat. I think the values of the gas stocks will gradually increase to pre-boomlet prices but not back to the spiked valuations. The exploration companies took on lots of debt (adding risk to the companies) and sold lots of stock (diluting the value of the stock) this year, so a more sober market will most likely more even-handedly balance the opportunity and risk of the companies.

Without viable exploration companies and stabilized (read: higher) natural gas prices, the sexy Haynesville leases will sit on the shelf and the grandiose drilling plans will be put on the back burner.