Tuesday, May 5, 2009

Questar: Update from Earnings Call

Questar, though not one of the big leaseholders in the Haynesville Shale, has been one of the more successful drillers. It has also partnered with Petrohawk on some other successful wells. In the company's quarterly earnings call, it mentioned that it has brought a new Questar operated well, W.K. Cupples 10H #1 (18 MMcfe/day initial production) to market. It also participates with Petrohawk on three new wells, all of which are doing well:

- Sample 4 #2: 23.9 MMcfe/day initial production
- Hutchinson 9H #6: 19.9 MMcfe/day IP
- EGP #66H: 17.7 MMcfe/day IP

Questar is also struggling with drilling costs, saying that its wells have averaged between $10 and $11 million per site, which is higher than some other companies report. They hope to get that number down to $8 to $9 million in this "buyer's market" for oil field services.

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.

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