Thursday, February 26, 2009

Exco Resources: Two Big Wells

This week, Exco Resources discussed its first two Haynesville horizontal wells on its quarterly conference call (transcript). Exco has 92,000 net acres in the Haynesville Play and drilled its first two wells in DeSoto Parish, LA (see map below). The Oden 30H #6 was completed on December 3. It had initial production of 22.9 Mmcfe/day and average production of 15 Mmcfe/day. Lattin 24 #4 had initial production of 24.2 Mmcfe/day and average production of approximately 17 Mmcfe/day. Exco is expecting completion of another well shortly. The company has four rigs working in the Haynesville Play and estimates that it has total potential of 4.5 Tcfe of resources.

Additionally, the company discussed its plans to expand its pipeline capacity in the Haynesville Play for both its own product and that of other companies. Exco will invest $108 million in takeaway capacity of 450 Mmcfe/day that can be expanded to 1.0 Bcfe/day with compression. Unlike the Tiger Pipeline, which has to go through a process before it starts construction, Exco has already received delivery of much of the pipe and is beginning construction.

On the call, Exco indicated that it had drilled test wells in different sites in Texas and Louisiana and is finding that the shale is thickest and the pressures are highest in DeSoto and Caddo Parishes and Harrison County (in the acreage that Exco has leased). Among those three areas, the shale is reported to be thickest in Caddo.

Tiger Pipeline Web Site

Energy Transfer Partners recently created a new web site for the proposed Tiger Pipeline beyond it's "Open Season" page on the Energy Transfer site. The new site is:

As you will recall, the Tiger Pipeline is a 180 mile 42" pipeline that is expected to run through the Haynesville Shale from Carthage, TX to Perryville Hub in Richland Parish, LA. This project and others like it will be key in realizing the potential of the Haynesville Play.

Action in Shreveport

Numerous outlets are reporting the start of drilling on the first urban well in Shreveport (article from Shreveport Times). The well will be drilled this month by Petrohawk and be located near Clyde Fant Memorial Parkway on the site of the former Hamels Amusement Park. The site has been cleared and the drilling should take about thirty days.

This long awaited first urban drilling project will be carefully watched, especially as the municipal areas around Shreveport consider ordinances aimed at minimizing the impact of urban drilling.

The timing is interesting given the fact that it has been reported that Twin Cities Development, a leasing firm with ties to Chesapeake Energy, has stopped negotiating with groups of citizens, instead changing its strategy to negotiate only with individuals. KSLA also reported that the standard leases now require a five year base term with five year extensions, along with lower bonuses. A Twin Cities representative characterized the company's approach as "controlled development," where they selectively will pursue tracts that are close to drilling sites and pipeline access.

These actions demonstrate that the power has shifted from the land owner to the gas companies. Many of the large tracts now have been leased, and the combination of low natural gas prices, high gas supplies, economic recession and the credit crunch have limited gas companies' appetite for expensive new leases.

The end of the KSLA article discusses "forced-pooling," whereby the gas company can appeal to the Louisiana Department of Conservation to force the remaining unsigned landowners in an area into a standard 640 acre unit. The downside for the land owners is that they take the risk of not getting paid until the full cost of the well is recovered (an expensive prospect with horizontal drilling), but the upside is that they can share in the revenue at a higher percentage based on their surface ownership.

Saturday, February 21, 2009

Southern Star Reports Core Sample Results

This week, Southern Star Energy reported results from core samples from two of its wells in the Haynesville Play, specifically in the Sentell Field. Quoting the company's press release:

"Preliminary results of Core Lab's technical analysis of the Atkins-Lincoln 17-2 and Burt 20-1 well data, wireline logs and core samples indicate net thickness of the porous, gas-bearing Haynesville Shale intervals to be 327 feet and 249 feet respectively. The study further indicates that the Sentell Field's Haynesville Shale potential ranges between 258 Bcf and 321 Bcf gas in place per section."

The Sentell Field is in central western Bossier Parish, as indicated on the map below.

Tiger Pipeline Update

Energy Transfer Partners announced "open season" for the Tiger Pipeline project, which extends through the Haynesville Play (link to announcement; link to big map). Open season is a period in which pipeline builders receive indications of interest for the pipeline they are proposing. Open season for the Tiger Pipeline extends from February 20 to March 20, 2009. The link above is quite interesting for the amount of information it has about the proposed route.

Here is an article from Downstream Today with more information.

Wednesday, February 18, 2009

Here Come Local Ordinances Concerning Drilling

The Shreveport Times reported yesterday that local officials in Shreveport and Bossier City, as well as Caddo and Bossier Parishes have been working on a comprehensive set of ordinances to give local governments leverage in controlling drilling in the Haynesville Play. Most of that oversight now lies with the state. The local governments are learning from Ft. Worth's experience with the Barnett Shale and applying these lessons to the Haynesville Shale.

The regulations will generally address protecting water, limiting road damage and controlling noise, lighting and hours of operation at drilling sites.

All told, the frenzy of big bonus checks and potential wealth from future royalties may have clouded some citizens' understanding of the impacts to the surface area, especially in the more urbanized areas. While I would hate to see drilling in the Haynesville Play slowed by this process, it is better to address these issues now before drilling really heats up.

Monday, February 16, 2009

Attack on "Clean Coal"

The "Clean Coal" concept seems to be taking a media beating lately. TV commercials, newspaper ads, emails, web sites and other grassroots attacks are working hard at chipping away at coal's image.

I'm no fan of coal. It pollutes the air, water and land as it is mined and burned. It is most often strip mined, which leads to the destruction of many thousands of acres of wilderness. Outside of the number of people it employs in this country, I see very little upside to continuing its use. Its only upside is that it is cheaper than most other carbon-based fuels. Once you consider the external impacts of pollution and the human toll, I think coal's real cost would be considerably higher.

Of course, I'm a natural gas guy, so I'm a bit biased. Natural gas is no panacea, as it is another carbon-based, limited natural resource, but compared to coal it's terrific.

In any case, I've been interested in the anti-coal push lately. I've been wondering if the natural gas industry is in some way behind it. In my brief research, however, I haven't noticed this. Most of the anti-coal groups are environmental groups.

Interesting media blitzes I've noticed lately:
  • - The Reality Coalition sponsors television ads and a slick web site that was launched in December 2008.
  • - A project of the Waterkeeper Alliance and Robert F. Kennedy, Jr. It was featured in the Sunday New York Times this past weekend. They focus on trying to prevent new coal plants from being built. They draw attention to the various environmental impacts of coal.
  • - A web site with videos that is affiliated with the DeSmog Project and Greenpeace. They point out the environmental impacts and draw specific attention to the strip mining aspect of coal mining.
  • - Another advocacy web site.

There are plenty more out there. Google "clean coal" and you will get equal parts protest and industry spin.

Additionally, there is a significant push afoot to reduce mercury output from the nation's power plants. The EPA has been working on this for years (even during the Bush administration), but the Obama administration will definitely push it. The costs associated with scrubbing smoke stacks and implementing "clean coal" technology will definitely have an impact on the surface economic cost of coal.

Friday, February 13, 2009

More on Chesapeake's Expectation for Gas Prices to Increase

At the Cambridge Energy Research Associates CERA Week Conference in Houston earlier this week, Aubrey McClendon of Chesapeake Energy made a presentation that suggested market forces will cause natural gas prices to recover in 2010 and 2011. Quoting his presentation:
  • "Against unrelenting pessimism about U.S. natural gas prices in early 2009, there is emerging evidence that market forces are creating the conditions for a strong natural gas price recovery in 2010 and 2011
  • "What is that evidence? It’s plunging rig counts (40-50/week lately) and accelerating decline curves (the “dark side” of technology)
  • "What do we know today?
    – First year U.S. decline rate is 25-30%, i.e. 15-18 bcf/day
    – 2008 U.S. gas production YOY increase of 7-8%, or 4-5 bcf/day
    – 2008 natural gas rig count averaged 1,500 rigs – this overcame first year depletion of 25%-30% and generated growth of 7-8%, for a combined 32-38% growth rate
    – If natural gas rig count went to zero, then all would agree this 32-38% number would also become zero
    – So, if natural gas rig count goes down by 50% in 2009, CHK believes industry will lose ~40% of this 32-38% production capacity increase, through which 7-8% growth disappears and 7-8% production declines appear by YE 2009. So, YOY growth of 4-5 bcf/day in 2008 will give way to a decrease of 4-5 bcf/day a year later, setting up a big price rebound in 2010 and 2011 if U.S. economy does not materially weaken from here"

The company also believes, as many do, that the Obama administration will be good to natural gas, especially on the demand side. Democrats in general favor natural gas because it is a domestic product and burns cleaner than oil and coal. Many believe that the Obama administration will more quickly advance the conversion of coal plants to natural gas and the implementation of natural gas vehicles, both of which will lead to significantly increased demand.

Chesapeake also discussed the "Big Four" gas shale plays in the U.S. and stated the company's overall expectation for each: Barnett (~75 Tcf), Fayetteville (~75 Tcf), Haynesville (~500 Tcf) and Marcellus (~500 Tcf). Chesapeake believes that they Haynesville and Marcellus Plays will become two of the top ten or top five worldwide gas plays. Obviously Chesapeake is biased because of the company's position in each play, but that's still a strong statement. It's funny that people talk so much about the Barnett Shale, possibly because it is a more mature play, but based on Chesapeake's expectations, the Haynesville Play will be more than six times as big as Barnett.

An article at discussing the presentation also noted that that McClendon said, "We think in time it will become the largest gas field in the world at 1.5 quadrillion cubic feet." Chesapeake believes that the Haynesville Play will be the largest U.S. gas field by 2020.

Questar Reports New Wells

Questar E&P, which leases only 31,000 acres in the Haynesville Play, appears to have tied up some pretty good leases (see maps and slides below). On its fourth quarter conference call, management discussed two wells specifically (both located on the Bienville/Red River Parish line):

  • Golson 32H - Questar's third Haynesville well; initial production at 23 MMcfe/day, average production at 18 MMcfe/day; average flowing casing pressure of 6400 PSI

  • Shelby 31H - Recently turned to sales; initial production at 20 MMcfe/day with high flowing pressure

A third well (the company's fifth Haynesville well) is about to be completed and three more are being drilled at this time. The slides below have some information about Questar's leasehold in NW Louisiana and some of the ongoing Haynesville wells in the vicinity of its leasehold. Good stuff!

Wednesday, February 11, 2009

Another Data Point on Gas Prices

A recent article in the Wall Street Journal gave some additional insight on why natural gas prices have remained low, even during the winter, a time that prices traditionally rise as demand for home heat increases.

The article notes that, while many Northeast U.S. households use heating oil, approximately 72% of the homes in the Midwest use natural gas. Households in general represent more than 20% of U.S. natural gas consumption. The article points out that the combination of a general recessionary climate and the increased number of foreclosures and vacancies have conspired to reduce demand. People simply aren't turning up the heat, even though January 2009 was 8.3% colder than last year. Demand has slacked because people want to save money.

Foreclosures are another interesting situation. The number of homes vacant due to foreclosure has increased significantly, and many banks are saving money by abandoning the previous strategy of continuing to heat vacant homes to reduce risk of freeze damage. Additionally, because home sales have slowed, more homes are vacant. Retail closures have also cut into demand as many vacant stores don't require the same level of gas service.

Anecdotally, Dominion East Ohio, the utility for Cleveland, notes that temperatures have been 25% colder this winter, but natural gas use has been 5%-10% below that of similarly cold winters.

Comstock Announces Two Haynesville Wells

Comstock Resources held its quarterly conference call and touted its progress in the Haynesville Play. To date, the company has completed two wells, is in the process of completing three additional wells and is drilling another five. The company has 70,504 net acres in the play, concentrated along the LA/TX state line. Comstock’s leased areas and details on the individual wells appear on the images from the company’s slides attached to this post.

The two wells recently placed in production are:

- BSMC La 7-1H well in Toledo Bend North field, 9 MMcfed
- Gamble 24-1H well, 14 MMcfed

Good flow rates, but not outstanding. Comstock is planning to drill 30 Haynesville horizontal wells (gross) in 2009. The third slide has details on locations of these wells.

Tuesday, February 10, 2009

Forest Oil's First Haynesville Well

Forest Oil, which has 140,000 acres in the Haynesville Play under lease, today announced completion of it's first horizontal Haynesville well. The Moseley 14 – 1H, located in Red River Parish, Louisiana, produced into the sales line at a rate of 14 MMcfe/d with 6,500 psi flowing casing pressure while still cleaning up frac load. That's quite respectable. Some of Petrohawk's gushers have it beat, but 14 MMcfe/day is pretty darn good.

Forest operates two drill rigs in the Haynesville Play and intends to drill between 10 and 12 wells in 2009. The company completed 14 vertical wells in 2008 to gather information for its horizontal drilling program.

Monday, February 9, 2009

Another Take on Gas Prices

A recent article in the Shreveport Times documenting a speech to the Shreveport Kiwanis Club by a couple of representatives from Chesapeake Energy offers a different take on the relationship of supply and demand on the price of natural gas compared with the LNG post below this one.

The Chesapeake reps take on the decline in the price of gas had to do with the decline in the use of natural gas, especially by industrial users, and the increase of domestic supply, especially through the new shale plays. They didn't address the concept that LNG dumping in the U.S. might increase supply significantly. The Chesapeake reps contend that a decrease in the number of active drilling rigs will lead to an increase in gas prices. A quote from the article:

"'The industry is very responsive to the price of the product,' (Chesapeake representative Kevin) McCotter said. So when the number of rigs drops, so will the supply. But demand won't drop, which will spur prices upward and lead to an increase in the numbers of rigs and increased exploration of development of the newest proven bonanza, the local Haynesville Shale."

I would love to believe that temporarily decreasing the number of rigs in the field will lead to an increase in gas prices, but I think it is naive. While I don't think the LNG dumping situation is dire, I think it needs to be taken in consideration. I think the ultimate issue determining price is demand, and I think the biggest issues related to demand are: 1) improvement of the U.S. and world economies, 2) increased use of natural gas in power generation and industry, 3) alternative uses of natural gas (i.e. the Pickens Plan), and 4) the possibility of exporting natural gas. I'd love to see the LNG ports turn into export facilities rather than import facilities.

Who knows what the appropriate price of gas is. It is highly dependent on the activities of traders and the sentiment of investors. Ultimately, I think economic stability and improvement will help a great deal.

LNG and Impact on Natural Gas Price

There was an interesting article in the Wall Street Journal today about how poorly the liquefied natural gas (LNG) importing business has fared over the past few years. The expectation that the U.S. would become a major importer of LNG via coastal ports has not come to pass. One of the main reasons has been the increase in price in natural gas beginning in 2002, which has had the effect of making unconventional gas plays and horizontal drilling economically viable. The impact of shale plays like Barnett and Haynesville to U.S. supplies has been huge and has virtually killed the LNG import business (coupled, of course with the recent economic slowdown). The article mentioned one new LNG port that has only serviced three tankers in the ten months it has been open.

LNG is a big business for Europe and Asia, which don't have significant production of their own and pay higher prices for natural gas. The bad news is that after the LNG suppliers sell to Europe and Asia they dump the remaining product in the U.S. because of the oversupply of storage capacity resulting from the construction of the new LNG facilities. One analyst referred to the U.S. as the "market of last resort" for LNG sellers. Given our current recession and the decreased use of natural gas for industrial uses, the increased supply is likely to cause further pressure to suppress natural gas prices.

Tuesday, February 3, 2009

Good Update Map

Here is a good map from a presentation Petrohawk released today showing activity in the Haynesville Play in and around the Petrohawk properties.
The entire presentation is available here.

Petrohawk: New Wells and Operational Update

Here is information relative to the Haynesville Play from today's operational update from Petrohawk:

"Petrohawk recently placed four additional wells online utilizing production practices consistent with previously reported wells. The initial production rates of these wells averaged 17.7 Mmcfe/d, detailed as follows:

  • The Mack Hogan #4 (Bossier Parish, Section 3, 16N, 11W) had an initial production rate of 13.4 Mmcfe/d on a 24/64" choke with 6,350# flowing casing pressure.
  • The Osborne 8 #3H (Bossier Parish, Section 8, 16N, 11W) had an initial production rate of 18.8 Mmcfe/d on a 24/64" choke with 6,800# flowing casing pressure.
  • The Roos "A" #5 (Bossier Parish, Section 3, 16N, 11W) had an initial production rate of 15.1 Mmcfe/d on a 24/64" choke with 6,100# flowing casing pressure.
  • The Griffith 11 #1 (DeSoto Parish, Section 11, 13N, 14W) had an initial production rate of 23.3 Mmcfe/d on a 28/64" choke with 7,550# flowing casing pressure. This well is a significant step-out to the southwest from existing completions.
"Two Haynesville Shale completions, the Sample 4 #1 and the R.E. Smith Jr. 32 #1, experienced mechanical problems that resulted in lower than expected initial production rates. On the Sample 4 #1, a valve malfunctioned following completion, causing casing damage in the lateral portion of the well. The Company elected to produce the well on a 12/64" choke as a precaution against further wellbore damage. This well had an initial production rate of 5.4 Mmcfe/d with 7,020# flowing casing pressure. The R.E. Smith Jr. 32 #1 screened out halfway through completion due to the inadvertent firing of a perforating gun in the curve of the lateral. With only six stages of fracture stimulation, this well had an initial production rate of 11.1 Mmcfe/d on a 20/64" choke with 5,900# flowing casing pressure.

"The Company is currently producing approximately 160 Mmcfe/d gross from the Haynesville Shale with 16 operated wells on production. Eleven operated wells have been on production 30 days or more, averaging 15.2 Mmcfe/d over their first 30 days of production. Eight operated wells have been on production 60 days or more, averaging 13.2 Mmcfe/d over their first 60 days of production. The four wells on production greater than 90 days have averaged 8.8 Mmcfe/d over their first 90 days of production. All operated wells to date have been produced utilizing similar production practices. During 2009, Petrohawk will conduct a pilot program on certain wells whereby production practices will be altered to restrict production by utilizing smaller choke sizes. The Company will monitor this subset of wells for effects on decline rate and mechanical operation.

"Petrohawk's current drilling and completion methodology focuses on completing wells with longer laterals and maximizing the number of frac stages, spaced approximately 325 feet apart. The objective of this technique is to minimize the total number of wells required to effectively drain the reservoir, resulting in lower overall development costs. The Company is currently targeting lateral lengths between 4,300' and 4,600' with up to 15 frac stages. Petrohawk's first four completions averaged 3,339' in lateral length with 10 frac stages while the last twelve completions have averaged 3,958' in lateral length and 12 stages (with the exception of the R.E. Smith Jr 32 #3, which had down hole mechanical issues and only six frac stages).

During 2008, the Company utilized a "pre-drill" program whereby smaller, "spudder" rigs drilled the vertical portion of the wellbore in advance of horizontal rigs moving in to drill the lateral. At year end 2008, Petrohawk had eleven operated horizontal rigs running in the Haynesville Shale. The Company expects spud-to-first sales to average approximately 75 days during 2009, assuming longer laterals are drilled.

"Petrohawk has budgeted $690 million for Haynesville Shale drilling in 2009. Seventy-five to eighty gross operated wells are budgeted, with approximately 6 wells expected to be completed per month. The Company expects to operate an average of 12 rigs in the play in 2009 with an emphasis on holding operated acreage."