Thursday, April 16, 2009

“Why Haynesville Will be the Last Field Standing”

That was the title of GMX Resources presentation at the Developing Unconventional Gas (DUG) conference last week. Since they are more or less a pure play on the Haynesville Shale, it is probably as much wishful thinking as a prediction. The presentation was an interesting source of information about GMX as well as others, as the excerpted slides show below. While I did pick and choose some images, I recommend reading the whole presentation (here’s a link). There is good info in the presentation about current drilling operations, technical analytical material (i.e. logs), well economics and competitive intelligence, especially on Chesapeake and Petrohawk.

Below is a great graphic that summarizes the capital budgets of each company in the Haynesville Shale (size of dot) and how much of that budget is allocated to the Haynesville Play (vertical axis). I love it when someone can depict a lot of information in an easy to understand graphic.

The presentation also had information about fracturing that was pretty interesting. It showed a graphic depiction of fracturing with slides showing an aerial shot and a cross section.

There was also an interesting graphical depiction of the capex behind well cost, showing the that companies are reducing costs by squeezing suppliers and speeding time to market for the gas. The bar chart shows the different components of the costs of a well. While it's nice to see a breakdown, the category titles are vague, and the reader is left wondering whether or not land acquisition costs are included in the well economics.

GMX engaged in a lengthy discussion of hedging. Having locked in good forward selling prices is vital for the survival of the E&P companies. There are a few good slides in the presentation addressing this, but I won’t go into that detail. GMX also comes out saying that they are confident that gas prices will rise (although I read a quote by Dan Pickering of Tudor Pickering Holt & Co, an influential analyst, noting that there are lots of people talking about $2 gas by the fall (note: he didn’t say that he was predicting this)). GMX quotes a Bloomberg article that notes that a survey of 20 analysts sees gas trading at $7/MBtu in January 2010 and January 2010 futures are trading at a 49% premium to the current price.

Finally, I have included a couple of slides showing current drilling activity in the Haynesville Play. Note that the second slide has good detail by company for the Texas side of the play.

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