Friday, May 29, 2009
I've been mining the heck out of the recent EnCana Haynesville call, but I thought one slide was particularly interesting in terms of rig counts. The chart below shows how well the Haynesville Play has thrived in the face of plunging rig counts and gas prices. This is a testament to the strength of the field and the operators' need to drill the wells before their expensive leases expire. "Lease expiry" is an expression you are going to hear a lot of, especially if prices stay low past the end of the year. Even if they have to lose money at it, many of the Haynesville Shale producers will continue to drill new wells.
Canada has loads of oil and gas and has its own fertile shale plays, including the Western Canadian sedimentary basin (WCSB), Montney (in British Columbia), Horn River Valley (in WCSB), Utica Shales (Quebec) and the Colorado Shales (Saskatchewan). The map below, from the recent EnCana presentation, shows the key locations of shale gas in North America.
Because the economic environment has become hostile to new gas drilling projects, Canadian gas projects face numerous hurdles. Gas prices simultaneously were shocked by changes to supply and demand. The economic downturn cut North American demand by about 3 Bcfe/day, while increases in supply, mainly from U.S. shales, increased supply by about 3 Bcfe/day.
It will be interesting to see if any Canadian drillers other than EnCana get involved in U.S. shale projects, either as learning tools or ways to boost their own revenues.
Thursday, May 28, 2009
Climbing the learning curve and putting the lessons learned to work is part of EnCana’s Gas Factory strategy. 1) Get to know the geology, 2) engineer the process to near perfection and 3) replicate the successful drilling operations again and again – that’s the Gas Factory approach. You’ll see the same strategy from other companies like Petrohawk and Chesapeake, but they don’t seem to use the same unfortunate “gas factory” branding.
Wednesday, May 27, 2009
In the big picture, EnCana (and others) sees conventional natural gas production in North America in "irreversible decline" but at the same time sees unconventional gas plays as more than replacing production from the conventional plays. As a result, the company has tailored its business strategy around exploiting unconventional gas. The chart below says a lot about the future and the importance of plays like Haynesville.
They see that success in unconventional plays stems from big leasing operations and the best and most efficient use of technology. The subtext to me is that bigger is better. The little guy is S.O.L. in a future that is so capital and technology-based.
The executives focused much of their attention on the Louisiana side of the play. While they have an interest in approximately 435,000 net acres, they view the sweet spot as northern DeSoto and Red River Parishes, coincidentally where EnCana has a big chunk of leases, as shown on the map of "the fairway" (sort of like GMX's "de-risked acreage" map) below.
I'll talk more about geology in a later post, but they see higher potential for the land in the eastern part of the play because of the higher porosity of the shale. They also mentioned that the Company sees the sweet spot moving south in the play (at least they what they identify as the sweet spot is farther south than previously expected).
EnCana also talked about the business strategy for their operations in Haynesville. While it is still an emerging play, operators are in the second phase of their business strategies, having left the land rush phase. Now they are in the "Land Retention Strategy" phase, which means that they are going to judiciously select drill sites based on maintaining the best lease acreage. To realize the land retention strategy, EnCana is allocating an additional $290 million of capital to the Haynesville Shale. At the same time, EnCana is looking for partners to drill areas that might be less productive so the company can focus on the bigger payday. Not to say that the other leased areas are worthless - it's just that EnCana doesn't estimate them to be as valuable as leases in their sweet spot. But as the interpretation of the location of that sweet spot changes, the amount of land it is willing to offload is becoming smaller. Where it once intended to offload 134,000 acres, the number now seems to be about 30,000 acres. The slide below summarizes the land retention strategy.
Next phase in the strategy is the "Multi-Well Pad Gas Factory Operations." Sort of a mouthful, but it basically means that they will incorporate all that they have learned in drilling in both the Haynesville and Deep Bossier Shales and replicate it across their leasehold. It's been a steep learning curve, but based on the call, EnCana has learned a great deal. More on this later.
I was looking through the web site of the American Clean Skies Foundation and came across an interesting table. Much has been made about the release of carbon from burning fossil fuels, especially in regards to power generation. What's most telling about the chart (below) is the difference between natural gas and coal in other, really nasty pollutants.
Carbon is getting the press now, but mercury and sulfur have been long-standing environmental culprits. For years the EPA has been working on legislation to limit the emission of these chemicals from coal smokestacks. Carbon is the newcomer to the conversation. Much of the mythology of "clean coal" is to counter mercury and sulfur. Of course "clean coal" is more of a marketing platform than a real technology.
I don't make it a habit to cruise industry-sponsored public service group web sites (in this case, Chesapeake Energy is a big ACSF supporter), but the numbers did come from the Energy Information Administration.
Tuesday, May 26, 2009
I spent a rainy Memorial Day morning reflecting on the impact of new shale drilling technology and expertise on the world. Remember several months ago when a dispute between the Russians and Ukrainians left many Europeans without gas for a couple of cold January weeks? Potentially hostile foreign providers hold more than just the U.S. as energy hostages. What if Europe could become more energy independent by tapping the shales that might be below that continent? Shale covers the earth in various locations, so its not just the U.S. that could see a big shale gas bonanza.
The joint venture deals that Chesapeake struck with England's BP in the Fayetteville Shale and Norway's StatoilHydro in the Marcellus Shale make a lot of sense for the partners when viewed through the lens of exporting similar technology to Europe. Also, French company Total is a partner in an oil shale joint venture in Colorado. I came across an interesting article from a few months ago that discusses the concept of exporting our technology to the world. Europeans are way behind us in terms of having the technology and expertise to exploit shale resources and just like a big tech company in Silicon Valley, they seem willing to purchase it.
Wouldn't it be funny to see a big drilling rush in continental Europe? The great colonial powers of the past 500 years would be exploiting resources in their own backyards rather than ravaging other countries.
Monday, May 25, 2009
This is a different kind of arrangement than the deal Chesapeake struck with Plains Exploration in the Haynesville Shale. With a VPP, a partner pays a fixed price for a certain quantity of product. The deals with Plains in the Haynesville Shale and StatoilHydro in the Marcellus Shale are joint ventures designed for the partner to front drilling costs for a share of the future cash flow. Because the Barnett Shale is a more mature field and Chesapeake has approximately 1,350 producing wells there, the company was able to leverage its past risk to raise outside capital.
Chesapeake has also indicated that it intends to put about $1 billion worth of midstream assets into a joint venture to raise approximately $550 million. Again, not new news, but the company seems to have made some progress towards a deal, which had been tabled as of late last year.
Chesapeake has proven to be a pro at using unconventional methods to raise cash. You can bet that when the recession starts to clear and gas prices start to creep back up Chesapeake is going to attack the Haynesville Play with a cash-fueled fury.
Saturday, May 23, 2009
Natural gas is a cleaner, domestic product than oil and would provide independence from not so benign foreign powers. I was reading an interesting article in the March issue of Harper's Magazine about international oil "fixers" (read it if you have time - fascinating, but lengthy). In talking to the journalist, the fixer subject says "Oil is not a commodity. It is a political weapon." So true. Why involve ourselves in a situation we cannot possibly win when we have the resources at home to achieve at least some measure of independence?
He also touches on an argument that does not get made very often: the advances in horizontal drilling and hydrofracing come from the "ingenuity and technical prowess" of American workers. We shine such a bright light on technology that is developed in Silicon Valley, but what about the technology associated with exploration and drilling? Sure, Twitter and Facebook are interesting (for now), but they won't fuel your car or heat your home.
Friday, May 22, 2009
What is bad is the plummeting price of natural gas. Gas had been on the rise for a couple of weeks. Yesterday, futures got crushed, down 9.2%, and they were down another 2.6% today. The spot price was down 9% to $3.42, a price I had hoped was firmly in our rear view mirror. Apparently an increase in demand has not materialized as expected.
I read an article in the Wall Street Journal about futures prices and it noted that even though rig count has dropped "producers have struggled to rein in production." Companies like XTO and Petrohawk had drilled some serious gushers, so their production figures haven't dropped alongside rig counts. In other words, these companies and the natural gas industry are getting punished for success! Crazy world.
Underlying the specific issues is the big picture question of control. Who has the right to create and enforce the rules for drilling? It's the state versus the local governments. The state, though the Office of Conservation, has proposed regulations that would target drilling and ancillary activities to help balance the impact on the surrounding uses. The Caddo Parish Commission has come up with its own set of rules that are somewhat more stringent than the state's and are based largely on rules enacted in the Fort Worth area based on that community's experience with the Barnett Shale. Here are a couple of good articles about the situation (Shreveport Times, KSLA).
Already a state appellate court has ruled that the city of Shreveport can't prohibit drilling around Cross Lake, its drinking water source, because it infringes on the Commissioner of Conservation's authority, so it appears that the state starts with the upper hand. But what about regulating drilling-related debris on the highways? Seems like the local government should be able to regulate this.
In the end, the hearing was just that, a venue for listening. The head of the commission, James Welch, didn't make the trip, citing the fact that the Legislature is in session and he was needed in Baton Rouge (good point because the Legislature does need to be tightly supervised), so it was just staffers listening. It is unfortunate, however, that he wasn't there because he is the one who makes the final decision. His decision is about a month off, but the big picture control issue won't go away any time soon.
I recently posted an article in the Shreveport Times about some of the bills floating around in the state Legislature about control of state water resources (the link expired, but here is a copy from the Louisiana Oil and Gas Association). In looking back, I've found a couple of other interesting articles from a few months ago that are of interest. Both are from the Shreveport Times but are reprinted on the LOGA web site:
- - An article regarding use of the Red River for drilling, April 7, 2009, Shreveport Times
- - An article focusing on drilling use of water, Feb. 24, 2009, Shreveport Times
Thursday, May 21, 2009
In summary: new pipelines = good.
But I'm starting to wonder if LNG will in fact be the big killer after all. This week, Freeport LNG, operator of a major LNG port off Texas, asked the federal government for approval to convert the port into a re-exporter of LNG. In other words, the port would receive the gas then turn around and ship it back out to markets that pay more for gas. It sounds like a good way to get rid of a product that they will have trouble selling, but it seems odd and somewhat desperate. The port has not received an LNG shipment since last May, so it's not like they've got anything better to do.
But clearly not such a bad idea since Cheniere Energy, operator of a big LNG port at Sabine Pass (and a minority owner of Freeport LNG), has asked for similar approval. Sabine Pass has also gone many months without a shipment. Cheniere, which is entirely focused on the LNG import business, has lots of problems, as noted in a piece in Barron's that suggests the company might default on payments for its $3.1 billion of debt (Barron's article - requires subscription; commentary on article - no subscription).
As long as gas prices stay higher in Europe, I doubt we are going to see a bunch of ships filled with LNG plying ocean waters to get to our shores. The biggest concern is storage capacity overseas. If the gas can't be physically stored, the U.S. is the natural place to send it. Clearly there is lots of unused capacity at LNG ports.
Wednesday, May 20, 2009
There has got to be some hand wringing going on in Alaska right now as they watch the development of the Haynesville Shale, as well as that of the Marcellus and Barnett. Several years ago, Alaska approved a package of incentives to lure a pipeline company to build a massive natural gas pipeline from Prudhoe Bay to the Lower 48 States through Canada. The incentive package is called AGIA, or the Alaska Gasline Inducement Act.The only qualified bidder so far is TransCanada Corp. This is a massive project: 1,715 miles of 48" pipeline with initial capacity of 4.5 Bcf/day and up to 5.9 Bcf/day with enhancements. Total estimated cost is $25 billion, and the completion date is November 2017. The project and the potential selection of TransCanada is still working their way toward the end of a lengthy process. (Project website)
I'm sure Alaskan officials and TransCanada are closely watching the sudden surge of gas supply projected to come from the new shale plays in the Lower 48. I read an opinion article from the Alaska Journal of Commerce last week suggesting that the project is as good as dead and that the state should be looking for a way to ship the gas to Valdez and go into the LNG business. I don't know if that will happen, but these folks are probably also secretly rooting for adoption of the Pickens Plan, which will create numerous opportunities to sell gas in the Lower 48.
Tuesday, May 19, 2009
Note also that it represents net acres, so Plains Exploration gets credit for 110,000 net acres because they are a minority joint venture partner with Chesapeake. Same with Shell and EnCana.
Monday, May 18, 2009
- J.K. Williams 7H: 7.0 MMcf/day initial production on a 34/64 inch choke with 2,800 psi, Beckville/Minden area of Panola Co., TX.
- Branch 2H-1: 14.3 MMcf/day on an 18/64 inch choke with 6,750 psi, Bethany-Longstreet Field, Caddo Parish, LA
- ROTC 1H-1: 14.1 MMcf/day on an 18/64 inch choke with 7,150 psi, Bethany-Longstreet Field, DeSoto Parish, LA
I created the same map in two different views, one with main roads and parish line and the other with that same information but a topographic overlay. This information is just for Louisiana because I haven't had time to check out the resources at the Texas Railroad Commission, which regulates oil and gas production in Texas.
The maps are a little hard to read, but you can rather quickly get the gist of where drilling is occurring. The violet dots are permitted wells, either in production or at some stage of drilling, while the light blue squares are drilling units that have been approved by the DNR. Unfortunately the parish lines are difficult to see behind the map points, but the patterns are clear.
Sunday, May 17, 2009
- 28,200 MMcf/d - Petrohawk, Sample 9 #H1 Well, Serial #238116, S9-T14N-R11W
- 26,100 MMcf/d - Exco, Moran 27 #H6 Well, Serial #238915, S27-T14N-R13W
- 25,125 MMcf/d - Petrohawk, Roos #H32 Well, Serial #238585, S17-T16N-R11W
- 24,900 MMcf/d - Exco, Cook 28 #H1 Well, Serial #239292, S28-T14N-R12W
- 24,200 MMcf/d - Exco, Lattin 24 #H4 Well, Serial #238995, S24-T14N-R14W
- 23,900 MMcf/d - Petrohawk, Sample 4 #H2 Well, Serial #238828, S4-T14N-R11W
- 23,700 MMcf/d - Petrohawk, EGP 30 #H13 Well, Serial #238450, S30-T16N-R11W
- 23,500 MMcf/d - Questar, Golson 32 #H1 Well, Serial #238729, S32-T15N-R9W
- 23,400 MMcf/d - Petrohawk, Brown 17 #H4 Well, Serial #238222, S17-T16N-R11W
- 23,300 MMcf/d - Petrohawk, Griffith 11 #H1 Well, Serial #238281, S11-T13N-R14W
- 22,953 MMcf/d - Petrohawk, Albritton Cattle 15 #H1 Well, Ser #238770, S15-T13N-R11W
- 22,900 MMcf/d - Exco, Oden Heirs 30 #H6 Well, Serial #238245, S30-T14N-R13W
- 22,506 MMcf/d - Petrohawk, Glass_ock 34 #H1 Well, Serial #238928, S34-T16N-R11W
- 22,400 MMcf/d - Petrohawk, Powers 21 #H1 Well, Serial #239358, S21-T16N-R11W
- 22,000 MMcf/d - Chesapeake, Blount Farms 2 #H1 Well, Serial #237716, S2-T14N-R12W
- 21,700 MMcf/d - Questar, Shelby Interests 31 #H1 Well, Serial #238616, S31-T15N-R9W
- 21,400 MMcf/d - Exco, Sammo Partnership 18 #H5 Well, Serial #239107, S18-T14N-R12W
- 21,179 MMcf/d - Petrohawk, Albritton Cattle 9 #H1 Well, Serial #238610, S9-T13N-R11W
- 21,100 MMcf/d - Petrohawk, Goodwin 9 #H5 Well, Serial #238382, S9-T16N-R11W
- 20,300 MMcf/d - El Paso, Blake 10 #H1 Well, Serial #238976, S10-T13N-R14W
It's an interesting list and it shows that there have been some big winners. Although high IP is not the ultimate gauge of success, it is an interesting metric, and it also creates something of a game. What's interesting to note is that Exco, which has not drilled a lot of Haynesville wells, has hit some big 'uns, while Chesapeake, which is shouting loudest about its stake, is only on the list twice. Petrohawk, which has a lot of land and is drilling many wells, has 11 of the top 20.
Again, IP is not the ultimate arbiter of success, but as Americans we always love a race!
Friday, May 15, 2009
The Haynesville Shale region saw the opposite effect. In north Louisiana, four rigs were added, and in east Texas two rigs were taken away, for a net add of two rigs. This is not an absolute Haynesville number because it does contain rigs working in the Cotton Valley and neighboring formations, but it does show that activity in the region continues to be strong. This reflects comments by many of the Haynesville operators stating that they are either increasing capital spending in the Haynesville Play or keeping it steady.
The study assesses the impact of seven of the seventeen main companies (the seven represent 72% of the leased acreage), so it is somewhat incomplete, but the numbers it offers are pretty gaudy. Some of the figures regarding the impact of the Haynesville Shale:
- $2.4 billion in new business sales
- $3.9 billion in household earnings (including $3.2 billion in lease bonuses and royalties)
- 32,724 new jobs (greater than the statewide employment at banks and credit unions)
- $153.3 million of new state and local sales tax revenue
This glowing report is all well and good, but I don't put a lot of stock in economic impact studies. I used to perform these studies, so I know exactly how squishy they can be. It's more art than science at times. The accuracy of the report depends entirely on the quality of the inputs. If your inputs are not all locally derived spending figures, the results will be skewed to the positive. I do, however, believe in the multiplier effect of spending. There can be no disagreement that putting hundreds of millions of dollars into a community, be it through royalties/lease bonuses, employment, and the sales of goods and services, will yield a significant multiplier effect. The recipients of the cash then spend money for food, housing, gas and a myriad of other services. All of this spending tax revenues for the local and state government. There is a fine line, however, between new dollars and those that might have been spent anyway.
These issues aside, the bottom line is that the Haynesville Shale is a huge economic driver for North Louisiana and ultimately the state of Louisiana. Gauging the economic impact of the play is still preliminary because many companies are still in the early stages of their drilling programs and very little of the royalty money has begun to flow. The ultimate impact of hiring, spending, paying royalties, etc. will take years to assess.
The release of the report has also stoked the discussion of the negative impacts of drilling (and leasing, for that matter). While companies like Chesapeake are loudly touting the report, the economic impact is but one factor in the overall impact of the Haynesville Shale.
To date PV has drilled six wells, but one of them (Agnor #6H) was unsuccessful, a rare miss in the Haynesville Play. PV is seeing 4 to 6 MMcf/day initial production on wells, but it notes that it has restricted flows on the wells. Unfortunately they don't provide much juicy well detail.
The company has definitely been learning as it goes along and is seeing improved economics and efficiencies. PV's most recent well, Gail Furrh #8-H, was completed in 60 days, compared to the previous average of 81, and it came in around $7 million, down from an $8.4 million average.
Since the Commission checked the box for smart ideas, it left the door wide open for stupidity. As part of a discussion of carbon emissions, new PSC member and global warming doubter Eric Skrmetta invited a so-called expert to bash the concept that man is contributing to global warming.
Instead of using the PSC meetings to argue the existence of and/or man's role in global warming, our PSC Commissioners should be looking for ways to reduce Louisiana's use of dirty coal (11% of statewide power generation) while lowering our energy bills. In Louisiana we are sitting on one of the world's largest deposits of natural gas. Hello??? Clean and cheap! Local product! Is anybody listening???
Thursday, May 14, 2009
Devon has drilled five wells to date in the Carthage, TX area. Unfortunately the first two suffered casing failures and the next three were brought to production very conservatively to avoid similar problems. They still expect to recover between 5 and 8 Bcfe from these wells, but they have been slow starters. On the positive side, the company sees far slower decline rates in these first successful wells (although they didn't publish any curves). Devon plans another five wells in 2009. Well costs have dropped from the $11 million rage to the $9 million range.
Devon seems content to wait out the low natural gas prices and the technological learning curve.
- 36" Bienville Line: Permits and right-of-way acquired, construction has begun
- 36" Elm Grove Line: Permits and right-of-way acquired, surveyed, no construction yet
- 42" Winnsboro Line: Permits acquired, 99% of right-of-way acquired, final FERC application upcoming, permits for two compression stations received
Regency expects to have the pipeline complete and in service by the end of 2009.
Wednesday, May 13, 2009
But then I looked closer and read that the acreage is in the southern part of the Louisiana side of the play, specifically in Sabine and Natchitoches Parishes. From all evidence to date, it looks like those areas are not in the heart of the play and are definitely outside the "de-risked" boundary (at least as defined by GMX Resources).
I'm not accusing them of offloading a sucker play, but I imagine they are looking for a company that missed its opportunity to play in the Great Haynesville Land Rush and is looking for an easy in. Letting another company take the drilling risk in this area frees EnCana/Shell to focus on the acreage that has the highest probability for payoff. Since most leases have a "use it or lose it" feature, a.k.a. "held by production," if EnCana/Shell doesn't drill and produce on the land they will have to turn the keys back within three to five years (probably now two to four years). It's better to get a smaller piece of a bigger pie than to have to throw the pie away because you didn't have time to eat it. Or something like that.
- Callison #9H: 7.7 MMcfe/day IP; 2,000’ lateral; 123 MMcfg in first month
- Bosh #11H: 7.6 MMcfe/day IP; 3,100’ lateral; 123 MMcfg in first month
- Baldwin #17H: 8.7 MMcfe/day IP; 4,400’ lateral; 183 MMcfg in first month
- Baldwin #14H: 9.2 MMcfe/day IP; 4,620’ lateral; frac on April 13
- Verhalen “A” #2H: 4,198 lateral; frac on April 22
- Blocker Ware #19H: 4,446’ lateral; frac on May 10
- Blocker Heirs #12H: 4,934 estimated lateral; frac in June
- TJT Simpson #1H: 4,606’ lateral; frac in June
Tuesday, May 12, 2009
In any case, below is GMX Resources' estimate of the de-risked acreage (the thin blue line inside the colored area).
Monday, May 11, 2009
A summary of EXCO's Haynesville six operated wells:
- Oden 30 H #6 (100% WI) DeSoto Parish, Louisiana - Initial production (IP) 22.9 Mmcf per day, 7,800 psi on 26/64ths choke in December 2008. Produced 1.0 Bcf in first 64 days. Currently flowing 8.9 Mmcf per day with 4,200 psi after 149 days with cumulative production of 1.9 Bcf.
- Lattin 24 #4 (92.8% WI) DeSoto Parish, Louisiana - IP 24.2 Mmcf per day, 7,350 psi on 26/64ths choke in February 2009. Produced 1.0 Bcf in first 67 days. Currently flowing 10.8 Mmcf per day with 5,200 psi after 82 days with cumulative production of 1.2 Bcf.
- Sammo Partnership 18 #5 (100% WI) DeSoto Parish, Louisiana - IP 21.4 Mmcf per day, 6,870 psi on 30/64ths choke in February 2009. Currently flowing 9.8 Mmcf per day with 4,800 psi after 63 days with cumulative production of 789 Mmcf.
- Sharp 1 #1 (74.3% WI) Caddo Parish, Louisiana - IP 8.6 Mmcf per day, 4,100 psi on 30/64ths choke in April 2009. Currently flowing 4.2 Mmcf per day with 4,700 psi after 19 days with cumulative production of 104 Mmcf.
- Moran 27 #6 (45.0% WI) DeSoto Parish, Louisiana - IP 26.1 Mmcf per day, 7,300 psi on 28/64ths choke in April 2009. Currently flowing 19.0 Mmcf per day with 7,150 psi after 11 days with cumulative production of 233 Mmcf.
- Cook 28 #1 (69.8% WI) DeSoto Parish, Louisiana - IP 24.9 Mmcf per day, 7,480 psi on 30/64ths choke on May 2, 2009.
GMX completed "the Verhalen 'A' 2H Haynesville/Bossier horizontal well having a 4,198 foot lateral and 14 fracture treatment stages and an initial 24 hour production ('IP') rate of 8.5 million cubic feet per day ('MMcfd') of gas, on a 14/64 choke and 4,164 pounds of flowing casing pressure ('FCP') into the sales line. The first five Haynesville/Bossier wells have an average IP of greater than 8.3 MMcfd.
"In addition to the first five wells, the Company has drilled Blocker Ware 19H with a 4,446 foot lateral and has completed 9 of 12 fracture treatments, thus far. The Company has also successfully drilled and set casing on the Blocker Heirs 12H with a 4,934 foot lateral and TJT Simpson 1H with a 4,606 foot lateral. Scheduled completion for each of these two H/B Hz wells will follow the Blocker Ware 19H with 12 fracture treatment stages planned for each well. These wells are all expected to begin producing in Q2 2009."
More to come on GMX later this week.
Groundwater has long been a concern in northwest Louisiana, especially as the population grows. The more urbanized areas of Caddo and Bossier Parishes do draw water from some lakes and rivers, but the Red River, which runs between the two and down into the eastern portion of the Haynesville Shale has not been tapped to its full potential because of past concerns about water quality. Most of the rural areas use wells from increasingly inconsistent aquifers. Caddo seems to have the most pressing concerns, especially from agricultural uses and gas drillers.
Most oil and gas operators usually have the right to drill water wells to support their drilling and exploration activities, but as groundwater supplies become strained, expect to hear lots of push-back. The city of Shreveport sells water to operators, but it is far cheaper to drill a well on site than truck it in from Shreveport. It will be one of the big issues as the Haynesville Shale expands.
Friday, May 8, 2009
In this quarter, Comstock has successfully completed another six horizontal wells in the Haynesville Play:
- Bogue A #6H, Waskom Field, Harrison County, TX; vertical depth: 10,858 feet with a 2,600 foot horizontal lateral, 7 frac stages; IP: 7.4 MMcfe/day
- Hart #1H, Logansport Field, DeSoto Parish, LA; vertical depth: 11,553 feet with a 3,770 foot horizontal lateral, 10 frac stages; IP: 7.2 MMcfe/day
- Moneyham #1H, Longwood field, Caddo Parish, LA; vertical depth: 10,572 feet with a 3,840 foot horizontal lateral, 10 frac stages with some complications; IP: 6.6 MMcfe/day
- Headrick #1H, Logansport Field; vertical depth: 11,525 feet with a 4,060 foot horizontal lateral, 10 frac stages; IP: 15.1 MMcfe/day
- Holmes A #1H, Logansport Field; vertical depth: 11,442 feet with a 4,010 foot horizontal lateral, 10 frac stages; IP: 16.2 MMcfe/day
- BSMC 12 #1H, Toledo Bend Field, DeSoto Parish, LA; vertical depth: 11,525 feet with a 4,135 foot horizontal lateral; IP 11.6 MMcfe/day
It is actions like this and the Shreveport decision to purchase CNG powered buses that are an important first step in creating strong and steady demand for natural gas. Face it, right now natural gas is cyclical and seasonal. It is dependent largely on the industrial market and the seasonal heating/cooling market. For this to be a strong, legitimate industry, the cyclicality and seasonality have to be "smoothed." It's impossible to reduce it, but the more uses for natural gas out there, the more stability the industry will have.
A big step in this process is the NAT GAS Act, H.R. 1835. This act supports the use of natural gas vehicles. It is supported by Boone Pickens and is a great first step. With all the attention that Mr. Pickens brings to the table, it has definitely gotten the attention of Congress.
If we are going to move to some kind of Natural Gas Standard in this country, suppliers have to get involved in creating the infrastructure. As much as producers would like to just suck the stuff from the ground, ultimately they are going to have to be more involved on the distribution end. Chesapeake Energy has realized this and has focused on PR efforts, like CNG NOW. It will require more in the end. Just like Shell, Exxon and Chevron have gas stations, it might be incumbent upon natural gas producers to have their own retail delivery system. Are Chesapeake CNG stations in our future?
Thursday, May 7, 2009
It's most recent well, Power 21-1H in Bossier Parish, came in the other day at 22.4 MMcfe/day at 75,000 pounds flowing casing pressure. I hope to be able to post more Petrohawk results soon.
Additionally, management discussed well costs on the call, noting that they have been around $9.5 million. They expect these costs to come down but weren't specific how far.
The company is also working to expand its takeaway capacity in the region, getting ready for a big year in 2010.
XTO currently has four wells drilling in the Haynesville Shale, up from two. The company has been drilling mostly in Panola County, TX but is moving into Louisiana next month. They have two producing wells, the latest averaging 5.5 MMcfe/day. Four wells are awaiting completion and more information on at least a couple of them should be known next month.
Like other companies, XTO is choking back its Haynesville wells once they start producing. Once gas prices improve, look for them to open the spigot. Management indicated that the choking back should improve the production decline curves for the wells. The company also indicated that it is working on adding to its takeaway capability in the region so it can "run hard" next year. This last statement indicates to me that the company subscribes to the common belief that natural gas prices will recover in 2010. XTO is setting itself up as the crouching tiger by building capacity and drilling wells but holding back until prices improve.
XTO also mentioned a little about well costs. The existing wells have cost between $8 and $9 million, but a recent well came in at $7.5 million. They hope to get costs down to $6.5 million this year.
Tuesday, May 5, 2009
- Sample 4 #2: 23.9 MMcfe/day initial production
- EGP #66H: 17.7 MMcfe/day IP
Questar is optimistic that gas prices will recover before too long. Management points to the steep contango (a condition where the forward prices for the commodity are significantly higher than the current and near future prices) in the gas market. The company has been allocating much of its capital expenditures to the Haynesville Shale and Pinedale, where it feels it can operate with the best economics in this price environment.
Management also mentioned that it is curtailing production on its new Haynesville wells after clean up. For example, on its new Cupples well, which had IP of 18 MMcfe/day, Questar "pinched the well back" to 10 MMcfe. It plans to curtail production on all new wells until prices improve. Chesapeake said the same thing back in April.
Monday, May 4, 2009
The Shreveport situation is not nearly as severe as the battle that is brewing in the Marcellus Shale over groundwater. The issue there is contamination rather than depletion. In reading about the Marcellus play, I think back to an earlier post on the mechanics of horizontal drilling and how the process attempts to seal the drilling from the groundwater. Let's hope that works.
But the undeniable fact is that drilling is an industrial process and there are many things that can go wrong, impacting everything from the physical environment (water, animals, landscape, etc.) to the human environment (noise, light, smells, toxins, etc.), all of which can lead to alienated and generally pissed-off surface owners. If the Haynesville Shale is to be the golden goose for the region, it is better to address and minimize the externalities on the front end rather than try clean up the mess later.
Sunday, May 3, 2009
Friday, May 1, 2009
From the release: "In the second quarter of 2008, Southwestern signed a 50/50 joint venture agreement with a private company to drill two wells targeting the Haynesville/Bossier Shale intervals in Shelby and San Augustine Counties, Texas. The first horizontal well, the Red River 877 #1 located in Shelby County, reached total depth in the fourth quarter of 2008, was production tested at 7.2 MMcfe per day in the first quarter of 2009 and is currently producing approximately 3.0 MMcf per day. The second horizontal well, the Red River 164 #1, has reached total depth and it is expected to be completed and tested in the second quarter of 2009. Pending further results from these wells, the company may invest more capital in the Haynesville/Bossier Shale play than previously planned."
It's nice to hear that they find the Haynesville Play attractive, and it's always good to hear about increased spending in the play.